<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  FORM 10-QSB

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

For the quarterly period ended June 30, 2003
                               -------------
( )      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

For the transition period from __________________ to ______________

Commission File Number 0-12214
                       -------

                          DALECO RESOURCES CORPORATION
              -----------------------------------------------------
             (Name of small business issue as specified in Charter)

Nevada                                          23-2860734
------                                          ----------
(State or other jurisdiction                   (IRS Employer Identification
of incorporation or organization)               Number)

120 North Church Street
West Chester, Pennsylvania 19380               (610) 429-1258
--------------------------------                -------------
(Address of Principal Executive Offices)       (Issuer's telephone number)

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution under a
plan confirmed by court.
                                                                 Yes ___ No ___

                      APPLICABLE ONLY TO CORPORATE ISSUERS

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

Number of shares outstanding of the issuer's common stock as of June 30, 2003:
25,764,261
Number of shares outstanding of the issuer's Series A preferred stock as of
June 30, 2003: 8,000
Number of shares outstanding of the issuer's Series B preferred stock as of
June 30, 2003: 375,000



<PAGE>


                                      INDEX

                                                                           PAGE
PART I   FINANCIAL INFORMATION

ITEM 1   FINANCIAL STATEMENTS (Unaudited).................................3
         Consolidated Balance Sheets......................................3
         Consolidated Statement Of Loss...................................5
         Consolidated Statement Of Deficit................................6
         Consolidated Statement Of Cash Flow..............................7
         Notes to Consolidated Financial Statements.......................8

ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS.............................30

ITEM 3   CONTROLS AND PROCEDURES.........................................32

PART II  OTHER INFORMATION...............................................35

ITEM 2   CHANGE IN SECURITIES............................................35

ITEM 3   HELLER DEBT.....................................................36

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............36

ITEM 6   Exhibits and Reports on Form 8-K................................37

SIGNATURES ..............................................................38


                                      -2-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED  BALANCE SHEETS AS OF June 30, 2003 AND SEPTEMBER 30, 2002--
PREPARED BY MANAGEMENT  (UNAUDITED)  AND SEPTEMBER 30, 2002 (AUDITED)
=========================================================================
<TABLE>
<CAPTION>
                                                                June 30, 2003           September 30,
                                                                  (unaudited)               2002
                                                                                         (audited)
<S>                                                         <C>                      <C>
ASSETS
Current Assets
         Cash Accounts                                            $391,754                   $492,939
         C/Ds                                                      166,617                    132,743
         Account receivables                                       391,000                    848,487
         Prepaid Mineral Royalties (note 5c)                       240,150                    240,150
         Other Current Assets                                        4,569                      5,369
                                                               -----------                -----------
                               Total Current Asset             $ 1,194,090                $ 1,719,688
                                                               -----------                -----------
Other Assets
         Prepaid Mineral Royalties L/T                            $232,197                   $232,197
         Goodwill                                                  813,357                    813,357
         Accumulated Amortization Goodwill                        (813,357)                  (813,357)
                  Net Goodwill                                       -----                      -----
         Debt Placements Costs                                     584,815                    584,815
         Accumulated Amortization                                 (584,815)                  (584,815)
                  Net Debt Placement Costs                           -----                      -----
         Equity Placement Costs                                      -----                      -----
         Accumulated Amortization Equity Costs                       -----                      -----
                  Net Equity Placement                               -----                      -----
                          Total Other Assets                   $   232,197                $   232,197
                                                               ===========                ===========
Fixed Assets
         Oil and Gas Properties (note 3)                       $12,607,950                $12,607,950
         Accumulated DD&A                                       (6,707,950)                (6,307,950)
                  Net Oil and Gas Property                       5,900,000                  6,300,000
         Mineral Properties (note 5)                            12,609,100                 12,609,100
         Accumulated DD&A                                            -----                      -----
                  Net Mineral Property                          12,609,100                 12,609,100
         Timber Properties (note 4)                              1,028,342                  1,028,342
         Accumulated DD&A                                       (1,028,342)                (1,028,342)
                  Net Timber Property                                -----                      -----
         Technology/Patent Rights (note 6)                       7,767,000                  7,767,000
         Accumulated DD&A                                       (1,974,528)                (1,399,743)
                  Net Tech./Patent Rights                        5,792,472                  6,367,257
         Property, Equipment, Furniture & Fixtures                 514,749                    514,749
         Accum. Depr (P, E, P & P)                               (490,749)                  (476,766)
                  Net (P, E, P & P)                                 24,000                     37,983
         Leasehold Improvements                                      -----                      -----
         Accu. Amort. (Lse. Improvements)                            -----                      -----
                  Net Lse. Improvements                              -----                      -----
                         Total Fixed Assets                    $24,325,572                $25,314,340
                                                               ===========                ===========
                         Total Assets                          $25,751,859                $27,266,225
                                                               ===========                ===========
                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

</TABLE>
                                      -3-

<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED  BALANCE SHEETS AS OF June 30, 2003 AND SEPTEMBER 30, 2002--
PREPARED BY MANAGEMENT  (UNAUDITED)  AND SEPTEMBER 30, 2002 (AUDITED)
=========================================================================
<TABLE>
<CAPTION>
                                                                          June 30, 2003        September 30,
                                                                           (unaudited)             2002
                                                                                                 (audited)

<S>                                                                   <C>                          <C>
LIABILITIES
Current Liabilities
         Trade A/P                                                         $    532,963         $    784,520
         Notes Payable (note 7)                                                 142,543              142,543
         Note Due related Pty (note 8).                                         725,196              698,196
         HFI Financing (note 10a)                                             5,154,783            5,154,783
         Loans--1st Regional (note 10d)                                         100,000              100,000
         CAMI Notes                                                             514,881              514,881
         Sonata and Standard Energy  Financing (notes 7b and 10b)                 -----                -----
         Accrued Interest Expense (notes 10a and 10b)                         1,891,444            1,974,261
         Accrued Dividend Expense (notes 11d and 16)                          1,995,106            1,750,106
         Accrued Expense Reimbursements                                          59,080               55,938
         Accrued Salary Expense                                                 296,120              170,595
                         Total Current Liabilities                         $ 11,412,116         $ 11,345,823
                                                                           ------------         ------------
Long Term Debt                                                                    -----             $300,000

         Total Long Term Debt                                                     -----             $300,000
                                                                                  -----             --------
                            Total Liabilities                              $ 11,412,116          $11,645,823
                                                                           ------------         ------------
EQUITY
         Beginning Retained Earnings                                       $(23,578,330)        $(18,185,097)
         Current Period Income/(loss)                                          (488,035)          (3,511,493)
         Dividends Paid (Cash & Stock)                                           10,000             (724,772)
         Add. Paid in Capital                                                38,134,735           37,836,061
         Preferred Stock (note 11)                                                3,830                3,830
         Common Stock (note 11)                                                 257,543              201,873

                          Total Equity                                     $ 14,339,743          $15,620,402
                                                                           ------------         ------------
                 Total Liabilities and Equity                              $ 25,751,859         $ 27,266,225
                                                                           ============         ============

</TABLE>


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -4-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF LOSS FOR THE QUARTERS ENDING AND THE NINE MONTHS
ENDING June 30, 2003 AND 2002 -- PREPARED BY MANAGEMENT (UNAUDITED)
<TABLE>
<CAPTION>
========================================================================================================================

                                                        3 Months Ending                   9 Months Ending
                                                      2003          2002                   2003          2002
                                                      ----          ----                   ----          ----
<S>                                               <C>       <C>                     <C>             <C>

Revenue
   O&G Sales                                     $ 380,984     $ 303,629            $ 1,053,044      $   786,980
   N P I Receipts                                     ----                                 ----
   Royalty Receipts                                 11,019         4,074                 23,038           12,604
   Timber Sales                                     20,000           ---                 20,000              ---
   Mineral Sales                                     -----          ----                  -----             ----
            Total Operating Income               $ 412,004     $                    $ 1,096,082      $
                                                 ---------     ---------            -----------      -----------
   Interest Income                                   -----          ----                  -----             ----
   Well Management                                  16,505        17,111                 50,122           51,334
   Ptr. Management                                   -----          ----                  -----
   Other Income                                     20,000           ---                 20,000              ---
           Total Other Income                    $  36,505     $  17,111            $    70,122      $    51,334
                                                 ---------     ---------            -----------      -----------
           Total Income                          $ 448,509     $ 324,814            $ 1,166,204      $   850,918
                                                 =========     =========            ===========      ===========
Expenses
   LOE - Oil and Gas                             $ 125,311     $ 206,700            $   431,536      $   509,904
   LOE--Timber                                         600           ---                  9,600              ---
   LOE--Minerals                                    18,109           ---                 67,247              ---
   N P I Exp.                                         ----           ---                   ----              ---
   Prod Tax                                         29,626        21,314                 83,141           58,954
   DD&A (Fixed Assets)                             346,256       276,256                988,768        1,095,685
   Third Party Distributions                         7,040         3,500                 16,877           39,767
            Total Operational Expense            $ 526,942     $ 507,770            $ 1,597,169      $ 1,704,310
                                                 ---------     ---------            -----------      -----------

   Interest Expense                                215,698        71,137                560,446          461,773
   General and Administrative Expenses             162,482       205,626                387,944          480,499
   Legal and Professional Fees                      28,736        13,182                261,119          187,567
   Financial Advisor Fees                            -----           ---                  -----           30,000
   Shareholder Information                           2,686         5,837                  4,527           23,413
   Amortization of Debt Costs                        -----           ---                  -----              ---
   Amortization of Goodwill                          -----           ---                  -----              ---
           Total Expenses                        $ 936,544     $ 803,552            $ 2,811,206      $ 2,887,562
                                                 ---------     ---------            -----------      -----------
           Net Income (Loss)                     $(488,035)    $(478,738)           $(1,645,003)     $(2,036,644)
   Loss per Outstanding Common Share                 ($.02)        ($.02)                 ($.06)           ($.11)
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -5-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT FOR THE THREE MONTHS
ENDED DECEMBER 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


                                                       2003             2002
                                                       ----             ----
Deficit - Beginning of Period                      $(22,421,366)   $(18,185,098)
Net loss for the 9 month period                      (1,645,002)     (2,036,644)
Dividends on Preferred Stock                            (10,000)             (0)
Deficit - End of Period                            $(24,076,368)   $(20,221,742)
                                                   =============   =============


























                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -6-
<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE QUARTERS ENDING AND NINE MONTHS
ENDING JUNE 30, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
<TABLE>
<CAPTION>
============================================================================================================================
<S>                                                         <c>                                 <C>

                                                                    3 Months Ending                   9 Months Ending
                                                                  2003           2002              2003            2002
                                                                  ----           ----              ----            ----
Operating Activities
Net Income/( loss) for the period                             $(488,035)     $(478,738)       $(1,645,002)    $(2,036,544)
Items not affecting working capital
     Change in DD & A for period                               $346,306       $276,256          $ 988,768     $ 1,095,685
     Debt Amortization                                             ----           ----               ----           -----
                  Sub Total                                    $346,306       $276,256          $ 988,768     $ 1,095,685
                                                               --------       --------          ---------     -----------
Items affecting Working Capital:
     (Increase) Decrease in other assets                       $   ----       $   ----          $     800     $   (18,274)
     (Increase) Decrease in Pre-paid Royalties                    -----           ----              -----           -----
     (Increase) Decrease in accounts receivable                  (5,849)       383,960            457,487          78,026
     Increase/(Decrease) in Partnership Accrued Distribution      -----          -----              -----           -----
     Increase (Decrease) in Trade payables                      115,787       (182,606)          (251,557)     (1,351,834)
     Increase.(Decrease) in other Accrued Expenses               33,787         56,031            128,667          12,577
     Gain/(loss) on Sale of Properties                           17,268          -----             17,268           -----
                  Sub Total                                    $161,180       $257,383          $ 352,685     $(1,279,505)
                                                               --------       --------          ---------     -----------

Cash provided (used) for operating activities                  $ 19,451       $ 54,901          $(303,669)    $(2,220,464)
                                                               --------       --------          ---------     -----------
Investing Activities
     (Increase)/decrease in Investment in Subsidiaries         $  -----       $242,257          $   -----     $    57,743
     Leasing, Acquisition and Well Costs Incurred                 -----          -----                             ------

Cash Provided from/(used for) Investing Activities             $  -----       $242,257          $   -----     $    57,743

Financing Activities
     Increase/(decrease) Notes due Related Parties             $  8,000       $137,000          $  27,000     $   137,000
     Increase/(decrease) Other Notes due                          -----        (20,000)             -----        (281,549)
     Increase/(decrease) Accrued Interest                       (50,928)        (9,198)           (82,817)       (121,504)
     Increase/(decrease) Accrued Dividends                       75,000       (201,213)           245,000        (850,297)
     Dividends Paid                                             (10,000)       (10,000)           (10,000)        (20,000)
     Proceeds of Equity Issuance                                  -----        201,081            357,075       1,428,752
     Proceeds of L/ Debt   -                                      -----          -----           (300,000)          -----
Cash provided from/(used for) financing activities             $ 22,072       $ 97,670          $ 236,268     $   292,402
                                                               --------       --------          ---------     -----------
Net Increase/(decrease) in cash for period                     $ 41,623       $394,828          $ (67,311)    $(1,870,319)

Cash and Cash Equivalents - Beginning of Period                $518,848       $235,893          $ 625,682     $ 2,501,040
                                                               --------       --------          ---------     -----------
Cash and Cash Equivalents - End of Period                      $558,371       $630,721          $ 558,371        $630,721
                                                               ========       ========          =========     ===========
     Change in Cash FY  3rd Qtr.                               $ 41,523       $394,828          $ (67,311)    $(1,870,319)
                                                               ========       ========          =========     ===========
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                      -7-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
1.       CONTINUED OPERATIONS

         The financial statements have been prepared on the basis of a going
concern, which contemplates that the Company will be able to realize assets and
discharge liabilities in the normal course of business. Accordingly, they do not
give effect to adjustments that would be necessary should the Company be
required to liquidate its assets. For the quarter ending June 30, 2003, the
Company reported a loss of $488,035. The ability of the Company to meet its
total liabilities of $11,412,116, of which $6,840,961 is nonrecourse to the
Company (See Note 10a) and to continue as a going concern is dependent upon the
availability of future funding, achieving profitable timber operations and
successful development of its mineral assets. On July 24, 2002 ("Closing Date"),
the Company entered into a $10,000,000 Equity Line of Credit Agreement with
Cornell Capital Partners, L.P. ("CCP"). As part of the transaction, the Company
issued to CCP a two year convertible debenture in a face amount of $300,000. The
debenture was convertible into common stock at a price equal to the lesser of
120% of the final bid price on the Closing Date or 80% of the average lowest
three closing bid prices as reported by Bloomberg of the Company's common stock
for the five trading days immediately preceding the date of the conversion. As
on January 24, 2003, the entire debenture had been converted into the common
stock of the Company (see Note 11(5)). The equity line provides for the Company
to draw down $75,000 per week over a three-year period. As of June 30, 2003, the
Company had not utilized any portion of the Equity Line of Credit. In accordance
with the provisions of the Equity Line of Credit, the Company filed a
registration statement on Form SB-2 with the Securities and Exchange Commission,
which became effect on November 7, 2002.

         The Company will continue to seek and evaluate "project specific"
funding commitments and other capital funding alternatives if and as they become
available.

         As of June 30, 2003, the Company and certain of it subsidiaries were in
default of certain debt obligations (See Notes 7, 8 and 10(a) below) . The
holders of these instruments are working with the Company to achieve the
ultimate extinguishment of the obligations.

2.       Summary of Significant Accounting Policies

         a.   Use of estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The Company
does not use non-GAAP financial measures in any of its filing with the
Securities and Exchange Commission.


                                      -8-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         b.   Basis of consolidation

         The consolidated financial statements of Daleco Resources Corporation
(the "Company") have been prepared in accordance with generally accepted
accounting principles and include the accounts of the Company and its
wholly-owned subsidiaries Westlands Resources Corporation, Sustainable Forest
Industries Inc., Deven Resources, Inc., DRI Operating Company, Tri-Coastal
Energy, Inc., Clean Age Minerals Incorporated, CA Properties, Inc. and 16/6,
Inc. The Company's investments in oil and gas leases are accounted for using
proportionate consolidation whereby the Company's pro rata share of each of the
assets, liabilities, revenues and expenses of the investments are aggregated
with those of the Company in its financial statements. The Companies investments
in minerals are accounted for using purchasing accounting methods.

         c.   Oil and gas properties and equipment

         The Company follows the successful efforts method of accounting for the
costs of exploration and development activities. Direct acquisition costs of
developed and undeveloped leases are capitalized. Costs of undeveloped leases on
which proven reserves are found are transferred to proven oil and gas
properties. Each undeveloped lease with significant acquisition cost is reviewed
periodically and a valuation allowance provided for any estimated decline in
value. Capitalized costs of proven developed leases are charged to income on the
units of production basis based upon total proved reserves. The capitalized
costs of these proven developed leases are written down to their projected net
recoverable amount.

         Costs of exploratory wells found to be dry during the year or before
the issuance of these financial statements are charged against earnings in that
year. Costs of successful exploration wells and development wells are
capitalized. All costs of development wells and successful exploration wells are
charged to earnings on a unit-of-production basis based upon proven developed
reserves. Where the costs of developed wells and successful exploration wells
exceed projected net recoverable amounts, such wells are written down to their
projected net recoverable amount. Net recoverable amount is the aggregate of
estimated un-discounted future net revenues from proven reserves less operating
and production expenses.

         The Company has been assessing the impairment of capitalized costs of
proved oil and gas properties and other long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121 (SFAS 121), Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed.
Under this method, the

                                      -9-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
Company generally assesses its oil and gas properties on
a field-by-field basis utilizing its current estimate of future revenues and
operating expenses. In the event net un-discounted cash flow is less than the
carrying value, an impairment loss is recorded based on estimated fair value,
which would consider discounted future net cash flows. SFAS 121 did not have any
impact on the Company's change in method of assessing impairment of oil and gas
properties and other long-lived assets including $20,000,000 in mineral
properties.

         d.   Site restoration, dismantlement and abandonment costs

         The salvage value of producing wells or mining deposits is expected to
exceed the cost of site restoration and abandonment. As a result, no such costs
are accrued in these financial statements. The Company has not accrued any costs
associated with the potential abandonment and restoration of mineral extraction
mine sites to date. Any required site specific restoration cost accruals will be
made once mineral extraction is initiated.

         e.   Property and Equipment

         Property and equipment are recorded at cost and depreciated over the
straight-line method over a period of five years. The carrying value of property
and equipment is impaired from time to time in addition to typical depreciation
charges based on independent appraisals of the operational condition of the
specific unit of property and/or equipment.

         f.   Timber Rights

         The Company has recorded the acquisition of timber rights at cost.
These costs are deferred until commercial production commences. Where the costs
exceed projected net recoverable amounts, the timber rights are written down to
the projected net recoverable amount. Net recoverable amount is the aggregate of
estimated un-discounted future net revenues from the sale of timber less
operating and production expenses.

         g.   Mineral Acquisition

         The Company has recorded the acquisition of Clean Age Minerals
Incorporated and associated mineral rights at cost.




                                      -10-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         h.   Debt Issue Costs

         Debt issue costs, represent those associated with the Heller Financial,
Inc. loan (see Note 10) and were being amortized over a period of five years.
The debt issuance costs was fully amortized as of March 31, 2002.

         i.   Cash and Cash Equivalents

              Cash and cash equivalents include cash and investments with
              original maturities of three months or less.

         j.   Fair Value of Financial Instruments

         Cash and cash equivalents, receivables, and all liabilities have fair
values approximating carrying amounts, except for the Heller Financial, Inc.
loan for which it is not practicable to estimate fair values. The loans are to
be repaid out of net cash flows. Additional interest or profit participation is
payable after the payment of principal. The fair value of all debt is based on
discounted cash flow analysis.

3.       Oil and Gas and Equipment

                                                                 As of
                                                       -------------------------
                                                         6/30/03       9/30/02
                                                         -------       -------

Proven lease acreage costs                             $5,429,996     $5,429,996

Proven undeveloped lease acreage costs                 $1,745,810     $1,745,810

Well costs                                             $5,432,145     $5,432,145
                                                       ----------     ----------
                                                      $12,607,950    $12,607,950

Accumulated depletion, depreciation and amortization   $6,707,950      6,307,950
                                                       ----------      ---------
                                                       $5,900,000     $6,300,000
                                                       ==========     ==========

(a)      Sale of Oil and Gas Properties

         On September 28, 2001, effective January 1, 2001, the Company's
sponsored partnership, Developing Energy Partners I, L.P. sold all of its wells
in Pennsylvania and West Virginia for $3,250,000, of which $2,234,722 was
received at closing and $1,015,278 was attributed to production revenues
collected between January 1, 2001 and September 28, 2001.


                                      -11-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         Since the Company, as managing general partner, was responsible for the
receipt and distribution of all funds from the sales of these assets, 100% of
the proceeds were tabulated as part of the gross revenues of the Company on its
financial statements for the relevant periods. As indicated on those statements,
net funds attributable to the limited partners of Developing Energy Partners I,
L.P. were shown as both a line item, "Third Party Distributions", and within the
appropriate notes to those financial statements.

         On or about July 31, 2002 but effective as of July 1, 2002, the Company
sold all of its oil and gas properties in Pontotoc County, Oklahoma, consisting
of 11 gross wells and 1.08 net wells, to the operator. These properties were
marginal properties and wells with the revenues from production being just
slightly above lease operating costs. Since these properties were part of the
collateral for the Heller Loan (See Note 10(a)), all the proceeds from the sale
went to Heller.

4.       Timber Rights Acquisition

         Effective September 29, 1995, the Company entered into an agreement
("Acquisition Agreement") to purchase 100% of the issued and outstanding shares
of the Common Stock of Sustainable Forest Industries, Inc. ("Sustainable"), a
privately held Delaware company, in exchange for 150,000 shares of Common Stock
of the Company.

         Prior to this, Sustainable entered into a Timber Acquisition Agreement
on September 27, 1995 with Oreu Timber and Trading Co., Ltd. ("Oreu"), a Guyana
corporation which is an affiliate of May Joy Agricultural Cooperative Society
Ltd. ("May Joy"). Under the terms of the agreement, Sustainable has been
assigned the exclusive harvesting and cutting rights for the timber concession
issue by Permit No. 1367. This permit was originally granted to May Joy who
subsequently assigned harvesting rights to Oreu as per an agreement dated
January 3, 1995.

         In exchange for the timber rights, Oreu received a 10% ownership of
Sustainable. This ownership was subsequently converted to equivalent shares of
the Company as a result of the acquisition of Sustainable.

         The acquisition has been accounted for by the purchase method. The
purchase price of $962,500 was determined based on the fair value of the 150,000
common shares of the Company given to acquire Sustainable. The fair value of the
net liabilities of Sustainable acquired was $65,842 resulting in consideration
of approximately $1,028,342, which has been recorded as timber rights. To
reflect adjustments to the carry value of these assets, the Company has taken
charges accumulating $1,028,342 as such the timber interests are no longer
carried on the Company's books.


                                      -12-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         The Company has maintained its concession rights since the inception of
timber operations in 1997.

5.       Mineral Properties

a.       Clean Age Minerals Incorporated. In September 2000, the Company
         acquired Clean Age Minerals Incorporated ("CAMI") by way of merger with
         the Company's wholly owned subsidiary, Strategic Minerals, Inc. CAMI
         has three (3) subsidiaries at the time of its acquisition, CA
         Properties, Inc., Matrix-Loc, Inc. and Lone Star Minerals, Inc.
         (collectively "CAP"). In Fiscal Year 2002, the name of Strategic
         Minerals, Inc. was changed to Clean Age Minerals, Inc. Also, the
         subsidiaries of Clean Age Minerals, Inc. were vertically merged, so
         that there is now only one subsidiary of Clean Age Minerals, Inc., CA
         Properties, Inc.

         CAP owns or has under long-term lease: (a) 5,200 acres(+/-) in Marfa,
         Presidio County, Texas, containing high grade zeolite; (b) 5,020
         acres(+/-) of calcium carbonate deposits located in the Oro Grande
         area, Cibola County, New Mexico; (c) seventeen (17) mining claims
         located in Sierra County, New Mexico covering 2,700 acres(+/-) of
         Kaolin; (d) eleven (11) zeolite mining claims covering approximately
         220 acres(+/-) located in Beaver County, Utah.

         b.   Minerals and Equipment
                                              2003                       2002
         Proven undeveloped lease costs    $12,609,100               $12,609,100
         Mine development costs                     --                        --
         Accumulated depletion and                  --                        --
         Depreciation
                                           $12,609,100               $12,609,100
                                           -----------               -----------

         c.   Prepaid Royalties.
         The Company receives a credit in the nature of "prepaid royalties" for
         rents paid on the Marfa Zeolite Lease, Presidio County, Texas, and a
         portion of the New Mexico Oro Grande Limestone Lease in Cibola County,
         New Mexico. During Fiscal year 2002 the Company did preliminary mining
         activities on its properties for the purpose of testing the minerals
         and producing samples for sales. The Company was entered into a
         contract for the commercial production of its calcium carbonate
         property in New Mexico in July 2003. The Company anticipates the
         commencement of the commercial production of its Kaolin and zeolite
         properties in the fourth quarters of Fiscal Year 2003. The Company did
         make sales of its CA Series products in the first and second quarter of
         Fiscal Year 2003. Testing of the Company's Kaolin was commenced in
         December 2002 and continued through the third quarter to confirm its
         properties for bidding on contracts currently anticipated to occur in
         the fourth quarter or the first quarter of Fiscal Year 2004. A portion
         of the Prepaid royalties ($232,197) attributable to the Calcium
         Carbonate deposits are not anticipated to be fully recovered in Fiscal
         Year 2003 and are carried as Long Term Assets. The remainder of the
         prepaid royalties ($240,150) is anticipated to be utilized within the
         subsequent twelve-month period and are listed as Current Assets.

                                      -13-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
6.       Patents & Technology

         As part of the acquisition of Clean Age Minerals Incorporated (See Note
         5(a) above), the Company also acquired U.S. Patent No: 5387738. This
         patent, owned by Clean Age Minerals Incorporated (previously owned by
         Matrix-Loc, Inc. which was acquired by Clean Age Minerals Incorporated
         as a result of Matrix-Loc's merger with Clean Age Minerals as of March
         18, 2002), deals with a reagent and process for the remediation of
         water and contaminated soils. The Company's subsidiary 16/6, Inc. has
         applied for a patent on its I(2) Technology. (Patent Pending
         #09/659641) This patent application covers the ability to extract
         certain text documentation from existing published documents. The
         United States Patent Office on June 13, 2003 issued a preliminary
         denial of the 16/6's patented application for the I(2) technology. The
         Company is currently reviewing its options which include but are not
         limited to appealing the Patent Office Examiner's decision or
         proceeding with the "build-out" of the technology in a proprietary but
         unpatented form.

7.       Notes Payable

a.       During the year ended  September  30,  1995,  the  Company  received
         $1,100,000  in return  for two notes  payable,  with the producing
         wells of the Company used as  collateral.  Interest of 10% per annum
         was due monthly.  In fiscal 1996,  the Company repaid $300,000 of the
         outstanding  balance.  In fiscal 1997, the remaining  $800,000 was
         converted into 16,000 shares of 10% cumulative  preferred stock, at
         $50.00 per share ("Series A Preferred  Stock"). The Series A Preferred
         Stock was subject to a put on August 20,  1999. The holders of the
         Series A  Preferred  Stock  filed a lawsuit in the Los Angeles Superior
         Court, California  against the Company, as well as Mr. Amir and Mr.
         Erlich as guarantors. Mr. Amir satisfied his obligation under his
         guarantee and purchased one-half, or 8,000 shares of the Series A
         Preferred  Stock, of the 16,000 shares of the Series A Preferred  Stock
         owned by the Kanes. The Company and Mr. Erlich entered into a
         Stipulation for the Entry of Judgment granting the Company until
         August 1, 2001 in which to satisfy the put for the remaining 8,000
         shares of Series A Preferred Stock plus accumulated interest. (See
         Litigation Note 14). Mr. Amir converted his Series A Preferred shares
         into 408,163 shares of Company common stock. A portion of the
         dividends ($32,212.97) due Mr. Amir

                                      -14-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         on the Series A Preferred  Stock was paid to Mr. Amir in the third
         quarter of fiscal 2002. (See Note 8(a)).

b.       During fiscal 1998, the Company borrowed $145,000 from four (4)
         persons. The debt was evidenced by Notes which matured on November 21,
         1998. The Notes earned interest at 2% over the prime rate charged by
         the Huntingdon National Bank of Columbus, Ohio, through the maturity
         date, and 18% thereafter. The Note holders were also given warrants.
         (See Note 11(b)--Warrants). $75,000 in principal amount plus accrued
         Interest due to Sonata Investment Company, Ltd., one of the
         Noteholders, ("Sonata") was paid to Sonata on November 30, 2001. On
         June 7, 2002, Mr. Lincoln converted his Note in the amount of $20,000,
         plus accrued and unpaid interest of $13,528.17, into 49,818 shares of
         common stock. The debt was converted at a price of $.673 per share
         which represented the average of the bid and closing prices for the
         five day period prior to the conversion. Presently, only two of the 4
         Notes each in the Face amount of $25,000, of the original $145,000
         remain outstanding. On August 1, 2001, the Company borrowed $42,000
         from Standard Energy Company. This loan earned interest at 2% per
         annum. The Standard Energy Company loan was satisfied on November 30,
         2001.

c.       Pursuant to Paragraph 5.1 of the Agreement and Plan of Merger by and
         among Clean Age Minerals Incorporated ("CAMI") and Strategic Minerals,
         Inc. ("SMI") and the Company dated September 19, 2000, obligations of
         CAMI to certain officers, directors and third parties were to have been
         satisfied by SMI or the Company within one (1) year of the merger. The
         indebtedness totaled (including the Martin Debt as defined in Note 8(b)
         below) $514,881 and was evidenced by Notes dated September 19, 2000.
         The Notes were due and payable on or before September 18, 2001 and
         provide for interest at the rate of 8% per annum. These Notes remain
         outstanding. As of June 30, 2003, the total amount payable on these
         notes is $628,171 representing principal of $514,881 and accrued but
         unpaid interest of $113,290.

8.       Due to (from) Related Parties

         (a)  Due to (from) Amir

         Mr. Amir has entered into four (4) Notes with the Company as follows:

         (1) Note dated October 1, 1995, bearing interest at the rate of prime
         plus 3 percent in the principal amount of $91,062.00. This amount
         remains outstanding as of June 30, 2003.


                                      -15-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         (2) Note dated October 1, 1995 bearing interest at the rate of 7% as a
         result of various advances as to the Company in the principal amount of
         $472,134 as of June 30, 2003.

         (3) Note dated July 20, 1998 in the face amount of $25,000 (See Note
         7(b)) bearing interest at the rate of 2% over the prime rate charged by
         the Huntingdon National Bank of Columbus, Ohio, through the maturity
         date, November 21, 1998 and 18% thereafter.

         (4) Note dated June 17, 2002 bearing interest at the rate of 7% in the
         principal amount of $137,000.

         As of June 30, 2003, the outstanding principal and accrued but unpaid
         interest on the obligations listed under numbers 1 through 4 to Mr.
         Amir amounted to $778,267.

         Mr. Amir was also entitled to a cash payment of $25,000 under his Key
         Man Contract on June 30, 2002. This bonus has not been paid (See Note
         13(b)).

         Prior to conversion of his Series A Preferred Stock into common stock,
         Mr. Amir was entitled to have received dividends in the amount of
         $91,550.72 of which $59,337.72 remains outstanding (See Note 7(a)).

         As of June 30, 2003, the Company owed Mr. Amir $70,834 in unreimbursed
         business expenses and $18,146 in accrued but unpaid salary.

         During 2002, the Company paid Mr. Amir $170,000 in partial payment of
         the accrued and unpaid interest on his notes, unreimbursed expenses and
         dividends attributable to the Class A Preferred Stock. These payments
         have been reflected in the current and prior quarterly statements. Mr.
         Amir subsequently advanced the Company an additional $137,000 (see
         8(a)(4) above).

         Mr. Amir converted $10,000 of indebtedness into 71,942 shares of Common
         Stock as of December 3, 2002. The conversion was at the average of the
         closing bid and asking price for the Common Stock for the five trading
         days prior to the date of conversion.

         As of June 30, 2003, the Company was indebted to Mr. Amir in the
         aggregate amount of $926,584.

 (b)     By virtue of the merger of Clean Age Minerals  Incorporated ("CAMI")
         with Strategic Minerals, Inc. on September 19, 2000, Strategic
         Minerals, Inc. assumed the obligation of CAMI to Mr. Robert E. Martin
         in the amount of $134,811 ("Martin Debt"). The Martin Debt was to have

                                      -16-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         been satisfied on or before September 18, 2001 but was not and remains
         outstanding. As of June 30, 2003, the Martin Debt amounts to $170,999
         representing $134,811 in principal and $36,188 in accrued  but unpaid
         interest. The Martin Debt is evidenced  by a Note providing for an
         annual rate of interest of 8%. These amounts are included in the
         amounts shown for the Company's obligation to the former officers and
         directors of Clean Age Minerals Incorporated. See Note 7(c)). As of
         June 30, 2003, the Company owed Mr. Martin $62,501 in accrued but
         unpaid salary and $6,489 in accrued and unpaid reimbursable business
         expenses.

(c)      Novinskie Debt. Under the terms of Mr. Novinskie's employment agreement
         (See Note 13(b)), Mr. Novinskie was to have received a cash bonus of
         $25,000 as of September 30, 2002. This bonus was not paid. As of March
         31, 2003, the Company owed Mr. Novinskie $33,699 in unreimbursed
         expenses and $70,835 in accrued but unpaid salary and $25,000 in
         accrued and unpaid bonuses (as discussed previously).

`        Mr. Novinskie converted $10,000 of indebtedness into 71,942 shares of
         Common Stock as of December 3, 2002. The conversion was at the average
         of the closing bid and asking price for the Common Stock for the five
         trading days prior to the date of conversion. As of June 30, 2003, the
         Company was indebted to Mr. Novinskie in the aggregate amount of
         $104,534.

9.       Debentures

                                                          2003             2002
                                                          ----             ----
                  8% Convertible Debentures             $30,000          $30,000
                                                        -------          -------
         a.       8% Convertible Debentures

         On September 11, 1996, the Company issued $1,310,000 worth of 8%
         convertible debentures with interest payable in stock only and accruing
         until conversion or redemptions after the term of two years. The
         placement agent's fees were 10% of the gross proceeds and 12,111
         warrants at $10.07 expiring November 16, 2001. The debentures may be
         converted after a holding period of 45 days after closing at the lessor
         of: (1) the fixed conversion price ($10.171875), or (2) 75% of the
         average closing bid price for the five trading days immediately
         preceding the date of conversion. As of March 31, 2003, $1,280,000 of
         the 8% debentures had been converted into 981,322 common shares.

                                      -17-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
10.      Long-Term Debt

         Long-term debt of the Company consists of the following:

         a.   Heller Financial, Inc.

         In August 1997, the Company entered into an arrangement with Heller
         Financial, Inc. ("Heller") whereby Heller agreed to provide the Company
         with up to $15,000,000 to rework existing horizontal wells, re-complete
         its vertical wells as horizontal wells, and develop additional acreage.
         Under the terms of the agreement, all of the properties of Westlands
         were transferred to a newly formed limited partnership, Tri-Coastal
         Energy, L.P., the general partner of which is Tri-Coastal Energy, Inc.,
         (Tri-Coastal) and the sole limited partner of which is Westlands.
         Westlands is also the sole shareholder of Tri-Coastal Energy, Inc. The
         amount outstanding (principal and accrued interest) under this
         arrangement as of June 30, 2003 and September 30, 2002, was $6,840,961
         and $6,962,975, respectively. Interest on the borrowings is at prime
         plus 2%. Principal is paid out of 85% of the net cash flow from the
         properties. Additional interest is payable from 50% of the net cash
         flow from these properties after the payment of principal. In January
         1999, Heller declared the loan to be in default, as a result of the
         pledged properties failure to generate the required interest payments.
         This was solely attributable to the decrease in the low worldwide
         prices for oil. As a result, the full amount of the Heller Loan has
         been reclassified as current debt. With the recovery of oil prices, the
         Heller Loan has come back into compliance, however, Heller has not
         rescinded its default notice. The obligations to Heller are
         non-recourse to the Company and payable solely out of the oil and
         properties pledged to Heller as collateral.

         b.   Sonata Investment Company, LTD.

         During the third quarter of fiscal 1997, Sustainable entered into a
         loan agreement with Sonata Investment Company, LTD. for $250,000, which
         remained outstanding as of December 31, 2000. Sustainable had the right
         to request an additional $250,000 prior to December 31, 1999, which was
         not exercised. The Company and Westlands were guarantors of the loan
         with Westland's (now Tri-Coastal Energy, L.P.) wells being pledged as
         collateral, subordinated to the Heller Financing. The loan was to have
         been repaid out of 25% of Sustainable's net cash flow with any
         remaining balance due by December 31, 1999. Interest is at 12%. In
         addition, Sonata received a profits participation of 25% of the net
         profits of Sustainable while the loan was outstanding and 20% after the
         loan is repaid (after payout). While the obligations were outstanding,
         Sonata sought and the Company agreed to grant Sonata additional
         collateral to secure its loan in the nature of a security interest in
         the Patent then owned by Matrix-Loc and the

                                      -18-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         mineral leases owned by subsidiaries of CAMI. The totality of the
         Sonata debt, plus all accrued and unpaid interest was satisfied on
         November 30, 2001, and all collateral for the loan was released.

         c.       First Regional Bank

         In September 1998, the Company assumed a $100,000 loan with First
         Regional Bank when it acquired Haly Corporation. Interest is at 6.9%
         and the loan matures December 12, 2003. The loan is secured by personal
         assets of Dov Amir an officer and Director of the Company.













                                      -19-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
11.      Capital Stock
<TABLE>
<CAPTION>
<S>                                                <C>                        <C>                      <C>
                                                                                                     NUMBER OF
                                                                                                      SERIES B
                                                                          NUMBER OF SERIES           PREFERRED
                                                  NUMBER OF COMMON             A PREFERRED          SHARES PAR
                                                  SHARES,PAR VALUE        SHARES PAR VALUE         VALUE $0.01
                                                   $0.01 PER SHARE      $0.01 PER SHARE (1)       PER SHARE (1)
                                                  ----------------      -------------------      -------------
Balance as of June 30, 2002                             19,182,239                   8,000             375,000

Issuance on conversion of the Note held
 by David Lincoln (See Note 7(b))                           49,818
Issuance to Cornell Capital Partners, L.P.
 and Westrock Advisors(2)(5)                             5,897,447
Issued to Mr. Novinskie and Mr. Amir(3)(4)                 229,500
Issued to Mr. Trainor in exchange for debt(6)              395,257
Ending Balance as of June 30, 2003                      25,754,261                   8,000             375,000

</TABLE>


 (1) On February 28, 2002, the Shareholders approved an amendment to the
     Articles of Incorporation of the Company, providing for an increase in the
     authorized common stock of the Company from 20,000,000 shares to 50,000,000
     shares of Common Stock. The Shareholders also approved the change of the
     Company's state of incorporation from Delaware to Nevada. This was effected
     through the merger of Daleco Resources Corporation, a Delaware corporation
     ("Old Daleco") with and into Daleco Resources Corporation of Nevada, a
     Nevada corporation ("New Daleco"). The merger was consummated as of March
     26, 2002. The Articles of Incorporation of New Daleco provide for
     authorized capital stock of 50,000,000 shares of common stock, par value
     $0.01 and 20,000,000 shares of preferred stock, par value $0.01.

 (2) On July 23, 2002, the Company entered into an Equity Line of Credit
     Agreement with Cornell Capital Partners, L.P. As part of the transaction,
     the Company retained the firm of Westrock Advisors, Inc., an unaffiliated
     registered broker dealer as its placement agent in connection with the
     Equity Line of Credit. Under the terms of the transaction, Cornell Capital
     received 847,826 shares as a commitment fee and Westrock Advisors, Inc.
     received 21,739 as a placement agent fee.

(3)  On October 31, 2002, the Company issued a total of 85,616 shares to Mr. Dov
     Amir (42,808) and Mr. Gary Novinskie (42,808) in accordance with their Key
     Man Employment Agreements. The stock was issued as of July 1, 2002 (See
     Note 13(b)). Mr. Martin was issued 50,000 shares in payment of his $50,000
     bonus under his Key Man Employment Agreement at $1.00 per share. (See Notes
     12 (a) and 13(b))

(4)  On December 3, 2002, each of Mr. Amir and Mr. Novinskie converted $10,000
     of debt owed to them by the Company into 71,942 shares of common stock for
     (143,884 in the aggregate) (See Notes 8(a) and 8(c)).

                                      -20-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
(5)  On November 27, 2002, Cornell Capital Partners ("CCP") converted $10,000 of
     the $300,000 debenture issued as part of its Equity Line of Credit
     transaction ("Debenture") into 85,470 shares, on December 9, 2002, CCP
     converted $40,000 of the Debenture into 366,972 shares, on December 30,
     2002 CCP converted $25,000 of the Debenture into 318,066 shares, on January
     8, 2003, CCP converted $10,000 of the Debenture into 144,927 shares, on
     January 13, 2003, CCP converted $15,000 of the Debenture into 238,095
     shares, on January 22, 2003, CCP converted $25,000 of the Debenture into
     454,545 shares, on January 23, 2003, CCP converted $100,000 of the
     Debenture into 1,923,077 shares, on January 24, 2003 CCP converted the
     remaining $75,000 of the Debenture into 1,442,307 shares, and on January
     28, 2003 CCP converted the interest due on the Debenture for the period
     August 2002 through December 2002 into 54,423. The entire Debenture has
     been converted into a total of 5,027,882 shares of common stock. On July
     24, 2002, the Company entered into a $10,000,000 equity line of credit with
     CCP. As part of the transaction, the Company issued a $300,000 Debenture to
     CCP. The Debenture issued interest at six percent (6%) per annum and
     matured in two years. CCP had the right to convert the Debenture into
     Common Stock of the Company at a price equal to the lessor of either (a) an
     amount equal to one hundred twenty percent (120%) of the closing bid price
     of the Common Stock on July 24, 2002, or (b) an amount equal to eighty
     percent (80%) of the average of the three (3) lowest Closing Bid Prices of
     the Common Stock for the five (5) trading days immediately preceding the
     date of CCP's conversion of the debenture into Common Stock.

(6)  On January 28, 2003, the Company converted $30,000 of debt owed to Mr.
     Trainor into 395,257 shares of Common Stock.

                                      -21-


<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         a.  Common Stock Options
                                                   June 30,       June 30,
                                                     2003           2002
                                                  ---------      ---------
             Outstanding and Exercisable (3)
              at beginning of period              5,610,000      6,110,000

             Canceled                              (110,000)      (414,384)

             Granted                                  -----          -----

             Reclassified                             (----)       (85,616)

             Exercised                                 (---)         -----

             Outstanding and Exercisable (2)
              at end of period                    5,500,000      5,610,000

         (1) These shares were reclassified as a grant under the Key Man
         Contracts with Mr. Amir and Mr. Novinskie. Previously they were
         included as options. The exact amount of the grant was not determinable
         until June 30, 2002 when the exercise price of the $25,000 portion of
         the $50,000 Key Man Contract bonus was to be paid to Mr. Novinskie and
         Mr. Amir in common stock.

         (2) Of the 5,500,000 options outstanding, 5,050,000 are held by current
         officers, directors and employees of the Company. The exercise price
         for the options held by insiders range from $0.25 per share to $1.08
         per share. On November 12, 2002, 110,000 options awarded under the
         Company's Non-Qualified Stock Plan expired. These options had an
         exercise price of $2.19 per share.


         On November 16, 2001, the Company entered into Key Man Employment
         Contracts with Mr. Dov Amir, Chairman of the Board of Directors and
         Chief Executive Officer of the Company, Mr. Gary J. Novinskie,
         President and Chief Operating Officer of the Company, and Mr. Robert E.
         Martin, a Director of the Company and President of Clean Age Minerals
         Incorporated (previously Strategic Minerals, Inc., see merger
         discussion). Under the employment agreements (see Note 13 below),
         Messrs. Amir and Novinskie were granted options for 500,000 shares of
         common stock and Mr. Martin was granted options for 1,000,000 shares of
         common stock. All these options expire on the third anniversary of the
         vesting of the options or two years after the key man ceases to be an
         employee of the Company. The exercise price for Mr. Martin's options
         are priced at $1.08 per share, 90% of the average closing price for the
         common stock for the five business days prior to October 1, 2001. The
         exercise price for Messrs. Amir's and Novinskie's options is 90% of the
         average closing price for the common stock at the close of business for
         the five trading days immediately

                                      -22-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         preceding June 30, 2002. The exercise
         price was determined to be $0.526 per share Mr. Amir and Mr. Novinskie
         received a signing bonus under the Key Man Contracts of $50,000,
         $25,000 of which is to be paid in common stock on or before June 30,
         2002, at a price equal to the average closing price for the common
         stock for the five business days preceding the date of issuance. Mr.
         Amir and Mr. Novinskie were each awarded 42,808 shares under this
         grant.

         On September 11, 2000 the Board of Directors of the Company granted
         options for 3,500,000 shares of common stock to three directors, one
         officer and an employee of the Company. Messrs. Amir and Novinskie
         officers and directors of the Company, were each awarded options for
         1,000,000 shares. Ms. Spencer, the Secretary of the Company, was
         granted an option for 250,000 shares and an employee, Mr. Payne, the
         Controller, was awarded an option for 250,000. Mr. Trainor, a director,
         was awarded options for 1,000,000. Mr. Trainor's options were
         transferred to his law firm in accordance with his firm's policies.
         Subsequently, Mr. Trainor's law firm assigned to him options for
         500,000 of the 1,000,000 originally granted. The 3,500,000 options are
         exercisable at a price of $.25 per share which was above the fair
         market value of the Company's stock at the time of issue. The options
         were granted for service and dedication to the Company to the
         recipients who while not being currently paid or paid at a wage scale
         substantially below market continued to work for the benefit of the
         Company and the shareholders. These options vested upon their grant.

         (3) The Company accounts for all stock-based compensation (options) in
         accordance with the Financial Accounting Standard Boards Statement of
         Financial Accounting Standards No. 123 (SFAS 123). SFAS 123 permits the
         Company's use of the intrinsic value method prescribed by Accounting
         Principles Board Opinion No. 25. Under SFAS 123, the fair value of
         stock options and compensation costs are measured as of the grant date.



                                      -23-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         b.       Common Stock Warrants

         Common Stock warrants outstanding at June 30, 2003, consist of the
following(1):
                                Price Per
Issuance                     Expiration Date         Amount (1)         Share
--------                     ---------------         ---------          -----
Financing Sources (2)        August 1, 2003 to                          $0.55 to
                             November 20, 2005        699,579              $1.05

Terra Silex Warrant (3)      December 31, 2006        250,000              $1.25

SCOA Warrants(4)             November 15, 2006      2,240,000     $2.00 to $3.00

         (1)  Common Stock Warrants Attached to Debenture

         In connection with the issuance of the 8% convertible debentures in
         September 1996; a number of warrants were granted to the holders of the
         debentures, the agents, and subagents who placed the debentures.

         On June 8, 2002, warrants for 65,500 shares with an exercise price of
         $10.81 per share expired. Those warrants were issued as part of the
         Company's issuance of 8% convertible debentures in 1996. With the
         expiration of these warrants, no warrants remain outstanding from the
         issuance of the 8% convertible debentures.

         (2)  Financing Sources

         On July 21, 1998, a total of 263,638 warrants expiring on November 20,
         2005 were granted to four persons who loaned the Company a total of
         $145,000 in July 1998. (See Note 7b). The warrants may be exercised at
         any time before the expiration date at an exercise price of $0.55. On
         August 9, 2001, the expiration date for a total of 25,000 warrants was
         extend to August 10, 2002 for warrants previously granted (August
         26,1997) to Kane interests as consideration for extending the time
         period on the redemption of their remaining Class "A" Preferred Shares.
         The exercise price of the "Kane Warrants" at any time before the
         expiration date is $2.50.

         On November 28, 2001, a total of 435,941 warrants to purchase common
         stock were granted to Sonata Investment Ltd. (warrants for 395, 273
         shares of common stock ("Sonata Warrant")) and Standard Energy
         (warrants for 40, 668 shares of common stock ("Standard Warrant")) as
         consideration for entering into the Loan Conversion Agreement dated
         August 1, 2001. The Loan Conversion Agreement extended the date by
         which the Company had to satisfy its obligations to both Sonata
         Investment Company, Ltd. ("Sonata") (See Note 10(b)) and Standard
         Energy Company ("Standard") and granted both Sonata and Standard the
         right to convert the debt into common stock of the Company at such


                                      -24-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         time as the Company advised Sonata and Standard of its intent to
         satisfy the Company's obligations to one or both entities. Sonata and
         Standard are affiliated entities. The exercise price was fixed at
         $1.05. The Sonata and Standard Warrants were to have expired August 1,
         2002. However, the Company agreed to extend the termination date of the
         Sonata and Standard Warrants until July 31, 2004 in exchange for
         Sonata's relinquishing its twenty percent (20%) interest in the net
         profits of the Company's subsidiary Sustainable Forest Industries, Inc.
         (See Note 10(b))

         On August 10, 2002, warrants for 25,000 shares issued to the Kanes in
         consideration for forbearance on the redemption of the Series A
         Preferred Stock expired.

         (3)  Terra Silex Warrant

         Under a Stock Purchase Agreement dated September 11, 2001 by and among
         the Company and Terra Silex Holding, LLC, Terra Silex was granted a
         warrant for 250,000 shares ("Terra Silex Warrant") at an exercise price
         of $1.25 The Terra Silex Warrant expires on December 31, 2006.

         (4)  Sumitomo Warrants

         Under a Stock Purchase Agreement by and among Sumitomo Corporation of
         America ("SCOA") and the Company dated as of November 16, 2001, SCOA
         was granted warrants for 1,700,000 shares of common stock with a five
         (5) year term at exercise prices ranging from $2.00 per share for the
         first 850,000 shares, $2.50 per share for the next 510,000 shares and
         $3.00 per share for the remaining 340,000 shares. The Company and SCOA
         also entered into a Master Distribution and Marketing Agreement dated
         as of November 16, 2001 under which SCOA was granted warrants for
         540,000 shares. These warrants have a five (5) year term and have an
         exercise price of $2.00 per share for the first 108,000 shares, $2.50
         pen share for the next 162,000 shares and $3.00 per share for the
         remaining 270,000 shares.

         c.   Net Income Per Share

         Net income per share (primary basis) was calculated on the primary
         basis of the weighted average number of common shares outstanding which
         amounted to 25,754,261 for the period ended June 30, 2003 (2002
         --19,182,239). For the periods ending June 30, 2003 and 2002, the
         exercise of the options and warrants outstanding as at year end did not
         have a dilutive effect on the net income per share.


                                      -25-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         d.   Payment of Accrued Dividends

         $603,024 of accrued dividends attributable to the 8% Cumulative
         Convertible Preferred Stock issued in the acquisition of CAMI ("CAMI
         Preferred") was paid in 480,998 shares of Common Stock upon conversion
         of 1,626,800 shares of the CAMI Preferred Stock to Common Stock
         commencing October, 2001 through June 30, 2003. See also Note 14(b),
         regarding payment of accrued dividends on the Series A Preferred Stock
         held by the Kanes through June 30, 2003.

12.      Income Taxes

         The Company has no current and deferred taxes payable. The Company and
its subsidiary have significant tax losses to be applied against future income.
The subsidiary Company's tax filings show net operating losses to be applied
against future taxable income in the amount of approximately $27 million to be
utilized in various years through 2009. The tax benefit of these losses is
estimated to be approximately $10 million. No potential benefit of these losses
has been recognized in the accounts.

13.      Employment Contracts and Commitments

a.       In connection with the acquisition of Sustainable and under a
         Management Agreement dated April 17, 1995, the Company agreed to engage
         two key officers for a period of seven years ending April 17, 2002. The
         two key officers are entitled to a base salary of $75,000 plus
         additional incentive payments each based upon a percentage of net
         income of Sustainable. At the time of termination for any reason, the
         key officers are entitled to a severance payment equal to the total of
         the annual base salary plus additional annual incentive payments he is
         then receiving multiplied by the remaining years, or portions thereof,
         of the contract period. During fiscal 1997, the Company reached a
         settlement with one of the officers in the total amount of $60,000 to
         be paid at $5,000 per month through February 1998.The one remaining SFI
         employment contract expired in accordance with its terms on April 17,
         2002 and was not renewed. The Company retains the services of the
         employee. As of June 30, 2002, Mr. Novinskie and Mr. Amir's employment
         contracts provided for bonuses of $50,000 each to be paid one-half in
         common stock and one-half in cash. The price of the stock to be issued
         was determined by taking the closing average of the bid and asked price
         for the Company's stock for the five (5) trading days preceding June
         30, 2002. (See Note 13(b) below).

b.       On November 16, 2001, the Company entered into a Stock Purchase
         Agreement with SCOA ("SCOA  SPA"). As a condition to the closing of the
         SCOA SPA, SCOA required that the Company enter into Key Man Employment
         Contracts ("Key Man Contracts") with Messrs. Robert E. Martin, Gary J.

                                      -26-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


         Novinskie and Dov Amir. The Key Man Contracts are for an initial three
         (3) year term. The Key Man Contracts  provide for acceleration of the
         vesting of incentive options should the Key Man be terminated prior to
         the expiration of the term of the Key Man Contracts. Each of Messrs.
         Novinskie and Amir are granted options for 500,000 shares of Company
         Common Stock while Mr. Martin was granted options for 1,000,000 shares
         of Common Stock. There are like provisions for the acceleration of the
         salary due each employee over the life of the Contract. (See Note 11a.)
         The Key Man Contract also provided for a bonus to Messrs. Novinskie and
         Amir of $50,000 to be paid one-half in cash and one-half in stock. (See
         Note 13(a) above). Mr. Novinskie's cash bonus has not been paid. Mr.
         Amir's bonus was debited against an advance given to Mr. Amir in the
         third quarter. (See Note 8.) Under Mr. Martin's Key Man Contract, he
         was granted a salary of $50,000 for the six month period April 1, 2002
         through September 30, 2002 ($8,333.34 per month), and $100,000 per year
         for the remaining two (2)years of his Key Man Contract. In accordance
         with his contract, the Company commenced paying Mr. Martin's salary as
         of April 1, 2002.

14.      Litigation Settlement and Pending Litigation

a.       Southland Drilling Company, a Division of Triad Drilling Company v.
         Westlands Resources Corporation. Daleco Resources Corporation and
         Tri-Coastal Energy. L.P., Cause No. 98-34542, In the 270th Judicial
         District Court of Harris County, Texas. On or about July 21, 1998,
         Southland Drilling Company ("Southland") commenced a lawsuit against
         the Company and its subsidiaries Westlands and Tri-Coastal. The lawsuit
         sought to recover the amount of $260,577.66 allegedly due and owing for
         work performed on the DRC GA #3 Well and the DRC VI #1 Well, Burleson
         County, Texas. The Company settled this matter by the filing of a Joint
         Motion for Entry of Agreed Judgment on December 1, 2000. Under the
         terms of the agreement, the Company is obligated to pay Southland
         $300,000 ("Settlement Amount") and has given a judgment note in that
         amount to Southland. The Company had 90 days from settlement in which
         to pay the note during which period Southland will forbear from taking
         any action. The Company failed to pay the Settlement Amount within the
         allotted 90 day period. As part of the Terra Silex Agreement, Terra
         Silex acquired the Southland Judgment from Southland and filed a
         release and satisfaction of the Southland Judgment.

b.       Kane v. Daleco Resources Corp., et. al. On or about January 14, 2000,
         Stanley B. Kane, et. al. commenced an action in the Superior Court, Los
         Angeles, California to enforce their right to have the Company
         repurchase 16,000 shares (stated value $50,000 purchase) of Series A,
         10% Cumulative Preferred Stock. The Plaintiffs had the right to put the
         stock to the Company on August 20, 1999, which they did. Although the
         Company continued to pay quarterly dividends on the Series A Preferred
         Stock, it did not redeem the shares due to its lack of


                                      -27-

<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         liquidity. Also named in the suit were Messrs. Dov Amir (a current
         officer and director of the Company) and Mr. Louis Erlich (who was an
         officer and director of the Company at the time of the issuance of the
         Series A Preferred Stock) who had given personal guaranties to the
         Plaintiffs.

         Mr. Amir satisfied his obligation under his guaranty to purchase
         one-half on 8,000 shares from the Plaintiffs. The Company entered into
         Stipulation for the Entry of Final Judgment and Judgment thereon as to
         Daleco Resources Corporation, pursuant to which the Company shall have
         until August 1, 2001 in which to redeem the remaining 8,000 shares for
         $400,000 plus accrued dividends through the date of settlement at a
         rate of ten percent (10%) per annum. The Kanes have been granting the
         Company an extension of the August 1, 2001 date on a month to month
         basis. On December 7, 2001, the Company paid the Kanes $90,000
         representing all accrued and unpaid dividends on the Series A Preferred
         Stock through December 31, 2001. The Company has paid all dividends due
         and payable to the Kanes for periods through the fiscal quarter ending
         March 31, 2002. Payments for the last four quarters ending March 31,
         2003 , in the amount of $80,000, are still outstanding.

         Mr. Erlich has filed a Cross Complaint against the Company for payment
         of his obligation under his guarantee.

c.       Elizabeth McFadden v. BBC/DRI Blacklick Joint Venture, Belden & Blake
         Corporation and Deven Resources, Inc., Civil Action--Equity, No. 50640
         CD 2001, Court of Common Pleas, Indiana County, Pennsylvania.

         This action was commenced by Plaintiff to prevent Belden & Blake
         Corporation from laying a pipeline and utilization of an easement
         across Plaintiffs property. Plaintiff's action had been dismissed once,
         and Plaintiff had refiled the complaint allegedly addressing new issues
         and adding Deven Resources, Inc. as a new defendant.

         Developing Energy Partners I, L.P. ("DEP"), for which Deven Resources,
         Inc. ("DRI") was the general partner, owned a 40% interest in BBC/DRI
         Blacklick Joint Venture ("Joint Venture"). Belden & Blake Corporation
         ("BBC") owned the remaining 60% of the Joint Venture prior to September
         28, 2001 at which time it acquired the 40% interest held by DEP. The
         pipeline and utilization of the easement by BBC which are the subject
         of this action are attributable to wells drilled on acreage under lease
         to the Joint Venture ("BBC Wells"). DEP went non-consent on the BBC
         Wells. Under the Joint Venture agreement, since DEP went non-consent on
         the BBC Wells, DEP had no responsibility or liability for any costs
         associated with the BBC Wells. Since the pipeline and easement usage
         across the lands of the Plaintiff was exclusively related to the BBC
         Wells, DEP

                                      -28-

<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         had no liability for the costs associated with this lawsuit.
         The relief sought by the lawsuit is to enjoin BBC from laying its lines
         across the Plaintiffs property and for damages to the surface of
         Plaintiffs property resulting from BBC's actions.

         Under the terms of the agreement covering the sale of DEP's 40%
         interest in the Joint Venture, BBC agreed to indemnify and hold DEP and
         its general partner, DRI, harmless from and against any and all damages
         and costs, if any, arising out of the McFadden litigation.

15.      Acquisitions

         Clean Age Minerals Incorporated

         CAMI, a Nevada corporation, was acquired by the Company through a
merger with the Company's newly formed subsidiary, Strategic Minerals, Inc., a
Nevada corporation, on September 19, 2000 Strategic Minerals, Inc. was the
surviving corporation which subsequently changed its name to Clean Age Minerals
Incorporated. The Shareholders of CAMI received 2,001,800 shares of Daleco
Resources Corporation Series B, 8% Cumulative Convertible Preferred Stock,
stated value $10.00, par value $.01, in exchange for 20,018,000 shares of CAMI
Common Stock constituting all of the capital stock of CAMI. CAMI, through its
subsidiaries CAP and Lone Star owns in fee and leasehold interests in
non-metallic minerals in the States of Texas, New Mexico and Utah. The Company
does not presently mine its minerals. Additionally, the Company acquired, as
part of the merger, a patented process utilizing many of the minerals owned or
under lease to the Company, for the cleansing and decontamination of water and
soils.

         Daleco's 16/6, Inc.

         Effective July 7, 2001, Daleco acquired 16/6, Inc., a software
development firm 16/6 has applied for a patent on its I(2) technology (Patent
Pending No. 09/659641). The I(2) technology covers the ability to extract
certain text documentation from existing published documents from the Internet
and micro-payments thereof. However, the United States Patent Office on June 13,
2003 issued a preliminary denial of the 16/6's patented application for the I(2)
technology. The Company is currently reviewing its options which include but are
not limited to appealing the Patent Office Examiner's decision or proceeding
with the "build-out" of the technology in a proprietary but unpatented form.(
See Note 6 to the Company's Financial Statements)

         Daleco acquired all of the outstanding capital stock of 16/6, Inc. in
exchange for 1,000,000 shares of common stock of Daleco.


                                      -29-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
Item 2 -      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS.

              The Private Securities Litigation Reform Act of 1995 (the "Reform
              Act") provides a safe harbor for forward-looking statements made
              by or on behalf of the Company. All statements, other than
              statements of historical facts, which address activities, events
              or developments that the Company expects or anticipates will or
              may occur in the future, including such things as the anticipated
              development of revenues, acquisition of additional properties or
              the obtaining of capital, business strategy, development trends in
              the industry segments in which the Company is active, expansion
              and growth of the Company's business and operations and other such
              matters are forward-looking statements. To take advantage of the
              safe harbor provisions provided by the Reform Act, the Company is
              identifying certain factors that could cause actual results to
              differ materially from those expressed in any forward-looking
              statements, whether oral or written, made by or on behalf of the
              Company. Many of these factors have previously been identified in
              filings or statements made by or on behalf of the Company.

              All phases of the Company's operations are subject to influences
              outside of the Company's control. Any one, or a combination, of
              these factors could materially affect the results of the Company's
              operations. These factors include: competitive pressures,
              inflation, trade restrictions, interest rate fluctuations and
              other capital market conditions, weather, future and options
              trading in, and the availability of natural resources and services
              from other sources. Forward-looking statements are made by or on
              behalf of the Company's knowledge of its business and the
              environment in which it operates, but because of the factors
              listed above, as well as other environmental and/or economic
              factors over which the Company has no control, actual results may
              differ from those in the forward-looking statements. Consequently,
              all of the forward-looking statements made are qualified in their
              entirety by these cautionary statements and there can be no
              assurance that the actual results or developments anticipated by
              the Company will be realized or, even if substantially realized,
              that they will have the expected effect on the business and/or
              operations of the Company.

              The third fiscal quarter, ending June 30, 2003, continued the
              Company's efforts to redirect its primary business focus to the
              commercialization of the mineral holdings of its wholly owned
              subsidiary, Clean age Minerals, Inc While this paradigm shift
              takes hold, the Company continued to maintain its historical
              operating levels within the energy sector. As such, this business
              segment provided essentially all of the Company's operating
              revenues for the quarter. Operating efforts relating to the
              Company's timber segment have been held at nominal levels for the
              period ending June 30, 2003.

                                      -30-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
              The Company's performance during the fiscal quarter remained
              highly dependent on its revenues derived from the production and
              sale of oil and natural gas. The operating results from this
              segment are influenced by a variety of factors that are beyond the
              control of management. The variability of the demand for and the
              pricing of crude oil and natural gas within the Company's
              operating areas as well as the pricing and availability of quality
              vender services all impact the attainable results of the Company
              and its competitors. During the quarter ended June 30, 2003, the
              Company's energy segment's performance, as measured by its direct
              operating cash flows, improved over 156% as compared to the prior
              year's period. These results were directly influenced by a
              continuation of favorably product prices and the Company's ability
              to stabilize production levels while containing extraction costs
              incurred for the period.

              During the quarter, the Company invested a considerable amount of
              its available capital and manpower resources into the ongoing
              development of the technical and operational platforms required to
              effectively monetize the three plus (3+) billion tons of
              industrial minerals controlled by Clean Age Minerals, Inc., the
              Company's wholly owned subsidiary. These efforts were "geared" to
              addressing the various factors associated with the acceptance of
              each of the minerals and the development stage of the respective
              deposits.

              Clean Age's efforts during the quarter relative to its New Mexico
              Calcium Carbonate (Travertine) deposit were focused on
              capitalizing on the extraction operations that were initiated
              earlier in the fiscal year. During the period, "raw product"
              inventories were established at levels sufficient, when coupled
              with extraction capabilities measured at rates as high as 400 ton
              per hours, to sustain an active sale program in the "commodity
              stone" markets. This availability of this inventory led to the
              execution of a commercially viable supply contract for the sale of
              ground cover and decorative stone products into the regional
              markets. The Company was able to augment its Calcium Carbonate
              processing capabilities by negotiating an "out sourcing agreement"
              which permitted the relocation and installation of a stone
              screening plant and associated loading equipment at its mine site.
              Access to this complement of equipment, which has an aggregate
              value approaching one (1) million dollars, allows the Company to
              more effectively differentiate its stone products and facilitates
              their delivery to the locally defined market which is estimated to
              require in excess of five hundred thousand (500,000) tons
              annually. As of June 30, 2003, Clean Age has not received revenues
              from the sale of stone product under its initial contract.

              In addition, the contract in place at quarter's end, opportunities
              are being pursued to introduce the Company's Calcium Carbonate
              material into other product applications such as road base,
              pollution control and filler markets to name a few.


                                      -31-

<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
              Expanding on its earlier investigative work, which was designed to
              confirm the technical characteristics of its Sierra Kaolin deposit
              in New Mexico, the Company focused on developing a commercially
              viable processing method during the quarter. This process work was
              complimented by efforts to identify and target potential end-users
              for the Company's Sierra Kaolin products in various industries
              such as the paper, paint, adhesive and specialty industries. In
              response to its initial inquiries, the Company has received
              various requests from potential end-users for "test sample
              quantities " of the Sierra Kaolin products. As of the period end,
              the Company was in the process of preparing these "application
              specific" samples for submittal to the potential clients.
              Indications are that the potential size of the North American
              market for Kaolin is in excess of five (5) million tons annually.

              To facilitate the introduction of its Sierra Kaolin products the
              Company is investigating various potential private and public
              financing sources to fund the construction of a processing
              facility capable of producing a suite of Sierra Kaolin products
              meeting the specific needs of the various industry applications.

              In addition to its efforts to independently introduce its Sierra
              Kaolin products, the Company has entered into a Confidentiality
              and Non-Circumvention Agreement and Memorandum of Understanding
              with another entity with the goal of establishing a potential
              long-term relationship that will serve as the framework for the
              mining, processing and distribution of the Company's Sierra
              Kaolins.

              As a result of these efforts, the Company has targeted the market
              introduction of its Sierra Kaolin products for the later part of
              calendar 2003 or early 2004

              The Company has continued to support the efforts of various
              independent engineering firms to evaluate and confirm the various
              applications for Clean Age Minerals' Patented CA Series Products ,
              Certain of these tests produced results which have been highly
              favorable to date, in areas such as the treatment of Bio-organic,
              agricultural and petro-chemical waste streams. Work leading to
              market introduction of the Patented CA-Series products is ongoing.

              In addition, to its use as a component in the Company's Patented
              CA-Series products, Clean Age Minerals is continuing its
              investigations of various potential alternate applications for the
              one and half (1.5) billion tons of high quality Zeolite under its
              control. The Company believes that the composite market potential
              for its base Zeolite and Patented CA-Series products is well in


                                      -32-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
              excess of one (1) million tons annually, once market acceptance is
              established.

              As a result of the general progress made regarding the market
              potential of the minerals and Patented CA Series Products, the
              Company remains optimistic on the potential for material sales of
              its minerals and Patented CA Series Products over the next six
              months and looks forward to their economic impact on the Company.

              Within the Company's timber segment, operations during the quarter
              were limited. The Company is currently assessing the various
              resource requirements necessary to effectively participate in this
              segment in light of its other activities.

         For the three month period ending June 30, 2003, total revenues
         increased by $123,695 (38%) while operating expenses decreased by
         $19,172 (4%) as compared with the same quarter last year. For the
         period the Company recorded a net loss of $488,035 as compared to
         $478,738 for the period ending June 30, 2002. The increase in revenues
         during the period is directly attributable to higher average oil and
         natural gas prices the Company received for its production during the
         fiscal quarter. This improvement in receipts was offset by slightly
         higher direct operating costs and the increase in interest expense
         recorded in the current period. Corporate administrative costs for the
         quarter ending June 30, 2003 were $193,904. This represents a decrease
         of 15% from the prior year's period. Required non-cash charges booked
         during the quarter accounted for roughly 37% of the total expenses for
         the period.

   Item 3.        Controls and Procedures

                  Sarbanes-Oxley Act

         On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
         of 2002 ("SOA"). The SOA is the first major revision to the securities
         laws since the enactment of the Securities Act of 1933 and the
         Securities and Exchange Act of 1934. The SAO, promulgated in large part
         in response to the collapse of Enron/Worldcom demise, covers a variety
         of measures all of which will not be covered here.

         The SOA is applicable to all publicly traded reporting companies no
         matter how small or large. The SOA provides for additional controls
         such as the chief executive officer's certificate regarding the
         accuracy of the Company's financial statements and providing for a
         criminal penalty for making a false statement to the certification by
         an executive officer that the financial statements do not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements, in light of the circumstances under
         which the statement were made, not misleading with respect to the
         period covered by the annual report. The certification also requires

                                      -33-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         that the executive officer of the company certify that the financial
         statements and other materials presented in the annual report fairly
         present all material respects the financial condition, results of
         operations and cash flows of the Company as of and for the periods
         covered by the annual report. This requirement exceeds the previous
         requirement that the financial statements merely be presented in
         accordance with generally accepted accounting principles.

         The Company believes that it has historically provided its financials
         in this fashion, having separately reported and presented each segment
         of the Company's business for the past few years.

         The SOA also suggests but does not presently require that a "Disclosure
         Committee" be established. This committee would consider the
         materiality of information and determine disclosure obligations on a
         timely basis. This committee would, in essence, become the Company's
         "watchman" for public disclosures. The Company has not, as of the date
         of this annual report, established such a committee. The Company has
         only six employees, and three independent directors. All parties are
         intricately involved in the decision making processes at the Company
         and no disclosure or decision not to disclose information is made
         without the input of inside management, counsel and at least one, if
         not more, independent directors. At such time as the Company changes
         its method of operation and/or increases the number of employees, it
         will reconsider the creation of a "Disclosure Committee."

         Because the drafting and approval of all the Company's reports is a
         collective process, the suggestions of the SOA to establish Disclosure
         Committees, a Disclosure Controls Monitor, conduct internal drafting
         sessions, distribution of draft reports and dealing with internal
         trading policies are presently either not applicable or are already
         implemented, have been and are part of the Company's operating
         procedures.

         The SOA also provides for certain controls on auditors and the
         accounting industry. The Company only utilizes its auditors for
         auditing purposes. As such, the Company feels that it is and will be in
         full compliance with the final regulations promulgated by the
         Securities and Exchange Commission ("SEC") under the SOA.

         The SEC has acknowledged that a "one-size fits all" approach to
         establishing effective disclosure controls and procedures and has not
         prescribed any specific disclosure controls and procedures. Rather, the
         SEC expects "each company to develop a process that is consistent with
         its business and internal management and supervisory practice." The
         Company believes that it has fully complied with the intent of the SOA
         and Regulations promulgated by the SEC.


                                      -34-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2003 AND 2002--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
PART II. OTHER INFORMATION

Item 1.  None

Item 2.  Change in Securities.

         There were no sales of securities by the registrant during the quarter
         ending June 30, 2003. On July 14, 2003, the Company converted $451.00
         of indebtedness owed to Mr. Pryor, a director of the Company, into
         3,563 shares and converted $3,748 owed to Seabreeze Printing for the
         printing of the Company's Annual Report and the materials for the
         Annual Meeting of Shareholders into 7,032 shares. These shares were
         issued subsequent to June 30, 2003.

         On November 27, 2002, Cornell Capital Partners ("CCP") converted
         $10,000 of the $300,000 debenture issued as part of its Equity Line of
         Credit transaction ("Debenture") into 85,470 shares, on December 9,
         2002, CCP converted $40,000 of the Debenture into 366,972 shares, on
         December 30, 2002 CCP converted $25,000 of the Debenture into 318,066
         shares, on January 8, 2003, CCP converted $10,000 of the Debenture into
         144,927 shares, on January 13, 2003, CCP converted $15,000 of the
         Debenture into 238,095 shares, on January 22, 2003, CCP converted
         $25,000 of the Debenture into 454,545 shares, on January 23, 2003, CCP
         converted $100,000 of the Debenture into 1,923,077 shares, on January
         24, 2003 CCP converted the remaining $75,000 of the Debenture into
         1,442,307 shares, and on January 28, 2003 CCP converted the interest
         due on the Debenture for the period August 2002 through December 2002
         into 54,423. The entire Debenture has been converted into a total of
         5,027,882 shares of common stock. On July 24, 2002, the Company entered
         into a $10,000,000 equity line of credit with CCP. As part of the
         transaction, the Company issued a $300,000 Debenture to CCP. The
         Debenture issued interest at six percent (6%) per annum and matured in
         two years. CCP had the right to convert the Debenture into Common Stock
         of the Company at a price equal to the lessor of either (a) an amount
         equal to one hundred twenty percent (120%) of the closing bid price of
         the Common Stock on July 24, 2002, or (b) an amount equal to eighty
         percent (80%) of the average of the three (3) lowest Closing Bid Prices
         of the Common Stock for the five (5) trading days immediately preceding
         the date of CCP's conversion of the debenture into Common Stock.

                                      -35-

<PAGE>


Item 3        Heller Debt.

         In August 1997, the Company entered into an arrangement with Heller
         Financial, Inc. ("Heller") whereby Heller agreed to provide the Company
         with up to $15,000,000 to rework existing horizontal wells, re-complete
         its vertical wells as horizontal wells, and develop additional acreage.
         Under the terms of the agreement, all of the properties of Westlands
         were transferred to a newly formed limited partnership, Tri-Coastal
         Energy, L.P., the general partner of which is Tri-Coastal Energy, Inc.,
         (Tri-Coastal) and the sole limited partner of which is Westlands.
         Westlands is also the sole shareholder of Tri-Coastal Energy, Inc. The
         amount outstanding (principal and accrued interest) under this
         arrangement as of June 30, 2003 and September 30, 2002, was $6,840,961
         and $6,962,975, respectively. Interest on the borrowings is at prime
         plus 2%. Principal is paid out of 85% of the net cash flow from the
         properties. Additional interest is payable from 50% of the net cash
         flow from these properties after the payment of principal. In January
         1999, Heller declared the loan to be in default, as a result of the
         pledged properties failure to generate the required interest payments.
         This was solely attributable to the decrease in the low worldwide
         prices for oil. As a result, the full amount of the Heller Loan has
         been reclassified as current debt. With the recovery of oil prices, the
         Heller Loan has come back into compliance, however, Heller has not
         rescinded its default notice. The obligations to Heller are
         non-recourse to the Company and payable solely out of the oil and
         properties pledged to Heller as collateral.

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

              There were no matters submitted to a vote of Shareholders during
the period covered by this report.

                                      -36-

<PAGE>

Item 5        Other Information:

              None.

ITEM 6        Exhibits and Reports on Form 8-K:

              31.1 Section 302 Certification
              32.1 Section 906 Certification



                                      -37-

<PAGE>

                                   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 11, 2003             By: /s/ Gary J Novinskie
                                        ----------------------------
                                        Gary J. Novinskie, President


         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 11, 2003                   /s/ Gary J. Novinskie
                                         ----------------------
                                         Gary J. Novinskie
                                         President and Director


Date: August 11, 2003                    /s/ Dov Amir
                                         ---------------------------------------
                                         Dov Amir
                                         Chief Executive Officer and Chairman of
                                         the Board of Directors

                                      -38-