UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q


(Mark
one)




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




For
the quarterly period ended December 31,
2008




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




For
the transition period from   to




Commission File Number
0-12214




DALECO RESOURCES
CORPORATION


(Exact
name of registrant as specified in its charter)





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





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







(Former
name, former address and former fiscal year, if changed since last
report)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.     Yes x    No
 ̈




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




Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈ (Do
      not check if a smaller
              Smaller
      reporting company xreporting
      company)




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




APPLICABLE
ONLY TO CORPORATE ISSUERS:


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




Number of
shares outstanding of the issuer's Common Stock as of January 31,
2009:  43,081,346


Number of
shares outstanding of the issuer’s Series B Preferred Stock as of January 31,
2009:  145,000





DALECO
RESOURCES CORPORATION





TABLE
OF CONTENTS





PAGEPART
      I - FINANCIAL INFORMATIONITEM
      1.
                CONSOLIDATED
      FINANCIAL STATEMENTS
                3Consolidated
      Balance Sheets
                3Consolidated
      Statements of Operations
                5Consolidated
      Statements of Cash Flows
                6Notes
      to Consolidated Financial Statements
                7ITEM
      2.
                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND
      RESULTS OF OPERATIONS
                12ITEM
      3.
                QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                16ITEM
      4.
                CONTROLS
      AND PROCEDURES
                16ITEM
      4T.
                CONTROLS
      AND PROCEDURES
                17PART
      II - OTHER INFORMATIONITEM
      1.
                LEGAL
      PROCEEDINGS
                18ITEM
      1A.
                RISK
      FACTORS
                18ITEM
      2.
                UNREGISTERED
      SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
                18ITEM
      3.
                DEFAULTS
      UPON SENIOR SECURITIES
                18ITEM
      4.
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                18ITEM
      5.
                OTHER
      INFORMATION
                18ITEM
      6.
                EXHIBITS
                18SIGNATURES
                19


-2-





PART
I – FINANCIAL INFORMATION





Item
1. Consolidated Financial Statements.





DALECO
RESOURCES CORPORATION


CONSOLIDATED
BALANCE SHEETS








December
      31
                  2008
                
                
                September
      30
                  2008(Unaudited)ASSETSCurrent
      Assets:Cash
      and Equivalents
                
                $
                15,316
                
                
                $
                472,912Accounts
      Receivable
                
                
                359,442
                
                
                
                474,692Other
      Current Assets
                
                
                7,550
                
                
                
                7,424Total
      Current Assets
                
                
                382,308
                
                
                
                955,028Other
      Assets:Technology
      and Patent Rights
                
                
                6,594,500
                
                
                
                6,594,500Accumulated
      Amortization
                
                
                (4,766,527
                )
                
                
                (4,622,164
                )Net
      Technology and Patent Rights
                
                
                1,827,973
                
                
                
                1,972,336Securities
      Available for Future Sale
                
                
                1,203
                
                
                
                5,510Restricted
      Cash Deposits
                
                
                105,958
                
                
                
                105,825Prepaid
      Mineral Royalties – Long-term
                
                
                520,000
                
                
                
                490,000Interest
      Receivable
                
                
                138,392
                
                
                
                131,387Total
      Other Assets
                
                
                2,593,526
                
                
                
                2,705,058Property,
      Plant and Equipment:Oil
      and Gas Properties, at cost
                
                
                4,424,512
                
                
                
                4,424,512Accumulated
      Depreciation, Depletion and Amortization
                
                
                (3,671,645
                )
                
                
                (3,626,795
                )Net
      Oil and Gas Properties
                
                
                752,867
                
                
                
                797,717Mineral
      Properties, at cost
                
                
                12,609,100
                
                
                
                12,609,100Accumulated
      Depreciation, Depletion and Amortization
                
                
                (950,000
                )
                
                
                (950,000
                )Net
      Mineral Properties
                
                
                11,659,100
                
                
                
                11,659,100Equipment,
      Furniture and Fixtures, at cost
                
                
                79,902
                
                
                
                79,902Accumulated
      Depreciation
                
                
                (62,114
                )
                
                
                (60,271
                )Net
      Equipment, Furniture and Fixtures
                
                
                17,788
                
                
                
                19,631Total
      Net Property, Plant and Equipment
                
                
                12,429,755
                
                
                
                12,476,448TOTAL
      ASSETS
                
                $
                15,405,589
                
                
                
                16,136,534





SEE ACCOMPANYING NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS.




-3-




DALECO
RESOURCES CORPORATION


CONSOLIDATED
BALANCE SHEETS










December
      31
                          2008
                        
                        
                        September
      30
                          2008(Unaudited)LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      Payable
                        
                        $
                        1,695,346
                        
                        
                        $
                        2,175,950Federal
      and State Income Taxes Payable
                        
                        
                        269,095
                        
                        
                        
                        264,795Note
      Payable - Related Party
                        
                        
                        45,485
                        
                        
                        
                        45,485Premium
      Finance Note Payable
                        
                        
                        24,496
                        
                        
                        
                        2,636EV&T
      Note
                        
                        
                        567,213
                        
                        
                        
                        567,213Note
      Payable - First Regional Bank – Current Portion
                        
                        
                        15,000
                        
                        
                        
                        99,970CAMI
      Notes
                        
                        
                        514,881
                        
                        
                        
                        514,881Accrued
      Interest Expense
                        
                        
                        634,645
                        
                        
                        
                        603,499Accrued
      Dividends Payable
                        
                        
                        1,655,242
                        
                        
                        
                        1,626,004Accrued
      Expense Reimbursements
                        
                        
                        19,051
                        
                        
                        
                        20,293Accrued
      Bonus Expense
                        
                        
                        1,373,831
                        
                        
                        
                        1,373,831Accrued
      Salary Expense
                        
                        
                        973,382
                        
                        
                        
                        986,698Total
      Current Liabilities
                        
                        
                        7,787,667
                        
                        
                        
                        8,281,255Note
      Payable – First Regional Bank – Long-term Portion
                        
                        
                        58,015
                        
                        
                        
                        —TOTAL
      LIABILITIES
                        
                        
                        7,845,682
                        
                        
                        
                        8,281,255SHAREHOLDERS’
      EQUITY:Preferred
      Stock – 20,000,000 shares authorizedSeries
      A Preferred Stock (outstanding: none)
                        
                        
                        —
                        
                        
                        
                        —Series
      B Preferred Stock – par value of $0.01 per share  (outstanding:
      145,000 shares)
                        
                        
                        1,450
                        
                        
                        
                        1,450Common
      Stock – 100,000,000 shares authorized – par value of $0.01 per share
      (outstanding: 43,081,346 shares)
                        
                        
                        430,813
                        
                        
                        
                        430,813Additional
      Paid in Capital
                        
                        
                        45,140,873
                        
                        
                        
                        45,118,409Accumulated
      Deficit
                        
                        
                        (37,432,732
                        )
                        
                        
                        (37,119,203
                        )Subscriptions
      Receivable
                        
                        
                        (576,000
                        )
                        
                        
                        (576,000
                        )Accumulated
      Other Comprehensive Loss
                        
                        
                        (4,497
                        )
                        
                        
                        (190
                        )TOTAL
      SHAREHOLDERS’ EQUITY
                        
                        
                        7,559,907
                        
                        
                        
                        7,855,279TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                        
                        $
                        15,405,589
                        
                        
                        $
                        16,136,534





SEE
ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS.


-4-





DALECO
RESOURCES CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)










Three
      Months Ended
                    December
      312008
                  
                  
                  2007Revenues:Oil
      and Gas Sales
                  
                  $
                  126,326
                  
                  
                  $
                  179,114Royalty
      Receipts
                  
                  
                  4,200
                  
                  
                  
                  3,429Mineral
      Sales
                  
                  
                  2,417
                  
                  
                  
                  1,155Well
      Management Revenue
                  
                  
                  65,700
                  
                  
                  
                  57,815Total
      Operating Revenues
                  
                  
                  198,643
                  
                  
                  
                  241,513Expenses:Lease
      Operating Expenses - Oil and Gas
                  
                  
                  40,056
                  
                  
                  
                  52,907Exploration
      Expenses - Minerals
                  
                  
                  —
                  
                  
                  
                  3,502Operating
      Expenses and Other Costs - Minerals
                  
                  
                  19,259
                  
                  
                  
                  44,992Production
      and Severance Taxes – Oil and Gas
                  
                  
                  7,670
                  
                  
                  
                  10,037Depreciation,
      Depletion and Amortization
                  
                  
                  191,056
                  
                  
                  
                  240,155General
      and Administrative Expenses
                  
                  
                  121,323
                  
                  
                  
                  219,841Legal
      and Professional Fees and Expenses
                  
                  
                  55,956
                  
                  
                  
                  27,703Shareholder
      Information Expenses
                  
                  
                  3,186
                  
                  
                  
                  1,330Amortization
      of Equity Placement Costs
                  
                  
                  -
                  
                  
                  
                  2,829Total
      Expenses
                  
                  
                  438,506
                  
                  
                  
                  603,296Other
      Income (Expense):Interest
      and Dividend Income
                  
                  
                  7,487
                  
                  
                  
                  21,710Interest
      Expense
                  
                  
                  (51,915
                  )
                  
                  
                  (39,057
                  )Total
      Other Income (Expense), Net
                  
                  
                  (44,428
                  )
                  
                  
                  (17,347
                  )Loss
      Before Income Taxes
                  
                  
                  (284,291
                  )
                  
                  
                  (379,130
                  )Taxes
      based on Income
                  
                  
                  —
                  
                  
                  
                  —Net
      Loss
                  
                  
                  (284,291
                  )
                  
                  
                  (379,130
                  )Preferred
      Stock Dividends
                  
                  
                  (29,238
                  )
                  
                  
                  —Net
      Loss Applicable to Common Shareholders
                  
                  $
                  (313,529
                  )
                  
                  $
                  (379,130
                  )Basic
      and Fully Diluted Net Loss per Share
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )Weighted-average
      number of shares of Common Stock Outstanding
                  
                  
                  43,081,346
                  
                  
                  
                  43,081,346





SEE
ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS.


-5-





DALECO
RESOURCES CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007


(UNAUDITED)





2008
                
                
                2007Cash
      Flows From Operating Activities:Net
      Loss
                
                $
                (284,291
                )
                
                $
                (379,130
                )Adjustments
      to Reconcile Net Loss to Net Cash Provided by(Used
      in) Operating Activities:Depreciation,
      Depletion and Amortization
                
                
                191,056
                
                
                
                240,155Amortization
      of Equity Placement Costs
                
                
                —
                
                
                
                2,829Stock-Based
      Compensation Expense
                
                
                22,464
                
                
                
                62,107Changes
      in Operating Assets and Liabilities:Other
      Current Assets
                
                
                (126
                )
                
                
                —Pre-paid
      Mineral Royalties
                
                
                (30,000
                )
                
                
                —Restricted
      Cash Deposits
                
                
                (133
                )
                
                
                (1,088
                )Receivables
                
                
                108,245
                
                
                
                41,078Accrued
      Interest Expense
                
                
                31,146
                
                
                
                28,448Accounts
      Payable
                
                
                (480,604
                )
                
                
                (227,661
                )Other
      Accrued Expenses
                
                
                (10,258
                )
                
                
                7,048Net
      Cash Used in Operating Activities
                
                
                (452,501
                )
                
                
                (226,214
                )Cash
      Flows From Investing Activities:Purchases
      of Fixed Assets
                
                
                —
                
                
                
                —Net
      Cash Used in Investing Activities
                
                
                —
                
                
                
                —Cash
      Flows From Financing Activities:Proceeds
      from Borrowings
                
                
                21,860
                
                
                
                97,475Payments
      on Notes and Debt
                
                
                (26,955
                )
                
                
                —Net
      Cash Provided By (Used In) Financing Activities
                
                
                (5,095
                )
                
                
                97,475Net
      Change in Cash and Equivalents
                
                
                (457,596
                )
                
                
                (128,739
                )Cash
      and Equivalents at Beginning of Year
                
                
                472,912
                
                
                
                224,267Cash
      and Equivalents at End of Period
                
                $
                15,316
                
                
                $
                95,528Supplemental
      Information:Income
      Taxes Paid
                
                $
                —
                
                
                $
                —Interest
      Paid
                
                $
                20,769
                
                
                $
                10,447Supplemental
      Disclosure of Non-cash Transactions:Preferred
      Dividends Not Paid
                
                $
                29,238
                
                
                $
                —





SEE
ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS.


-6-


DALECO
RESOURCES CORPORATION


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF DECEMBER 31, 2008 AND 2007





1.
Continued Operations and Going Concern





The unaudited consolidated financial
statements have been prepared on the basis of a going concern which contemplates
that the Company will be able to realize assets and discharge liabilities in the
normal course of business. Accordingly, they do not give effect to adjustments
that would be necessary should the Company be required to liquidate its assets.
The Company incurred a net loss of $284,291 for the quarter ended December 31,
2008. The ability of the Company to meet its total liabilities of $7,845,682 and
to continue as a going concern is dependent upon the availability of future
funding, achieving profitability within its mineral segment and ongoing
profitability within its oil and gas operations. If the Company is unable to
continue as a going concern, there is uncertainty relative to full
recoverability of its assets including the $20 million acquisition of Clean Age
Minerals, Inc. in September 2000.





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





As of December 31, 2008, the Company
and certain of its subsidiaries were in default of certain debt obligations and
certain employment agreements. The holders of these instruments are working with
the Company to achieve the ultimate extinguishment of the
obligations.





2.
Summary of Significant Accounting Policies





Basis
of Presentation





The
interim consolidated financial statements are unaudited but, in our opinion,
reflect all adjustments necessary for a fair presentation of the results of
operations and financial position for such periods in accordance with accounting
principles generally accepted in the United Sates for interim financial
information and with the instructions to Form 10-Q and Rule 10-1 of Regulation
S-X. All such adjustments reflected in the interim consolidated financial
statements are considered to be of a normal recurring nature. The results of
operations for any interim period are not necessarily indicative of results for
the full year. Accordingly, these financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Company’s Annual Report on Form 10-KSB for the year ended September 30,
2008.





Unless
otherwise noted, references to “year” pertain to the Company’s fiscal year,
which begins on October 1 and ends on September 30; for example, 2009 refers to
fiscal 2009, which is the period from October 1, 2008 to September 30,
2009.





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





Significant
Accounting Policies





There
were no changes to the Company’s Significant Accounting Policies from those
disclosed in our 2008 Annual Report on Form 10-KSB.





Use
of Estimates





The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.




-7-




DALECO
RESOURCES CORPORATION


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF DECEMBER 31, 2008 AND 2007





RECENTLY
ADOPTED ACCOUNTING STANDARDS





In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. The Company adopted SFAS 157 as of
October 1, 2008 and noted no material impact on the Company’s financial position
or results of operations as a result of the adoption.





In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS
159 permits entities to choose to measure many financial instruments and certain
other items at fair value in order to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. The Company adopted SFAS 159 as of
October 1, 2008 and noted no material impact on its financial position or
results of operations as a result of the adoption.




RECENTLY
ISSUED ACCOUNTING STANDARDS





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R revises the
principles and requirements for how the acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any non-controlling interest in the acquiree, and the goodwill acquired in a
business combination or gain from a bargain purchase. SFAS 141R also revises the
principles and requirements for how the acquirer determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This pronouncement is effective
as of the beginning of our 2010 fiscal year. The Company is currently evaluating
the impact, if any, that SFAS 141R will have on its financial position or
results of operations.





Also in
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interest
in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS
160”). SFAS 160 amends ARB No. 51 to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This pronouncement is effective as of the
beginning of the Company’s 2010 fiscal year. The company is currently evaluating
the impact, if any, that SFAS 160 will have on its financial position or results
of operations.





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires companies with
derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and how derivative instruments and related hedged items
affect a company's financial position, financial performance and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The adoption of this
statement is not expected to have a material effect on the Company's future
financial position or results of operations.





-8-




DALECO
RESOURCES CORPORATION


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF DECEMBER 31, 2008 AND 2007





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”). SFAS 162 identifies a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with U.S. generally
accepted accounting principles for nongovernmental entities (the “Hierarchy”).
The Hierarchy within SFAS 162 is consistent with that previously defined in the
AICPA Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles” (“SAS 69”). SFAS 162
is effective 60 days following the United States Securities and Exchange
Commission’s (the “SEC”) approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles”. The adoption of SFAS 162 will
not have a material effect on the Consolidated Financial Statements because the
Company has utilized the guidance within SAS 69.





In
June 2008, the Financial Accounting Standards Board (“FASB”) issued a FASB
Staff Position (“FSP”) on the FASB’s Emerging Issues Task Force (“EITF”) Issue
No. 03-06-1, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities,” (“FSP EITF 03-06-1”). This
FSP addresses whether instruments granted in share-based payment transactions
are participating securities prior to vesting and, therefore, need to be
included in the earnings allocation in computing earnings per share (“EPS”)
under the two-class method described in SFAS No. 128, “Earnings Per Share.” It
affects entities that accrue or pay non-forfeitable cash dividends on
share-based payment awards during the awards’ service period. FSP EITF 03-06-1
is effective for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years and will require a retrospective
adjustment to all prior period EPS. The Company is currently evaluating the
impact this FSP will have on its calculation and presentation of
EPS.





3.
Capital Stock





Common
Stock





No shares
of Common Stock were issued during the quarter ended December 31,
2008.





Series
B Preferred Stock





No shares
of Series B Preferred Stock were issued or converted to Common Stock during the
quarter ended December 31, 2008.





Options
and Warrants to Purchase Common Stock





Number of
                    Options
                    and
                    Warrants
                  
                  
                  Weighted
                    Average
                    Price per
                    ShareOptions
      and Warrants Outstanding at September 30, 2008
                  
                  
                  4,260,641
                  
                  
                  $
                  0.57Options
      Expired (1)
                  
                  
                  (200,000
                  )
                  
                  $
                  0.43Options
      and Warrants Outstanding at December 31, 2008
                  
                  
                  4,060,641
                  
                  
                  $
                  0.58





(1)
            In
      December 2008, an option for the purchase of 200,000 shares held by a
      former Director of the Company
expired.




-9-




DALECO
RESOURCES CORPORATION


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF DECEMBER 31, 2008 AND 2007





Summarized
information relating to the stock options to purchase Common Stock outstanding
as of December 31, 2008, is as follows:





Exercise
                    Price per
                    Share
                  
                  Number
      of
                    Shares
                    Underlying
                    Options
                    Unexercised
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                    Per Share
                  
                  
                  Weighted
                    Average
                    Remaining
                    Life
                    (Years)
                  
                  
                  Number of
                    Shares
                    Underlying
                    Options
                    Exercisable
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price Per
                    Share$0.28-$0.85
                  
                  
                  2,675,000
                  
                  
                  $
                  0.57
                  
                  
                  
                  1.17
                  
                  
                  
                  2,525,000
                  
                  
                  $
                  0.58





Stock-Based
Compensation





During
the quarter ended December 31, 2008, options to purchase 200,000 shares of
Common Stock expired unexercised. There are options to purchase 2,675,000 shares
of Common Stock outstanding as of December 31, 2008, of which 2,450,000 are held
by current officers, Directors and employees of the Company
(“Insiders”).  The exercise prices for the options held by Insiders
range from $0.28 per share to $0.85 per share.





In
accordance with the provisions of SFAS 123(R), “Share-Based Payment”, the
Company has recorded stock-based compensation expense of $22,464 and $62,107 for
the quarters ended December 31, 2008 and 2007, respectively, which is included
in General and Administrative Expenses. No tax benefit has been
recognized.  The stock-based compensation expense is based on the fair
value at the grant date. The fair value of the options was estimated using the
Black-Scholes option-pricing model with the following assumptions: risk free
interest rates between 3.14% and 4.72%; expected life of three to seven years;
and expected volatility between 56% and 184%.





Net
Income (Loss) Per Share





Net
income (loss) per share is computed in accordance with SFAS No. 128, "Earnings
per Share". Basic net income (loss) per share is calculated by dividing the net
income (loss) attributable to common shareholders by the weighted average number
of shares outstanding during the period. Fully diluted earnings per share
reflect the potential dilution of securities that could share in earnings of an
entity. In a loss year, dilutive common equivalent shares are excluded from the
loss per share calculation as the effect would be anti-dilutive.





Options
and warrants to purchase shares of Common Stock were outstanding during the
periods but have not been included in the computation of diluted earnings per
share because such options and warrants would have an anti-dilutive effect on
net loss per share. No other adjustments were made for purposes of per share
calculations.





Payment
of Accrued Dividends





There was
no cash dividend payment in respect to the Series B Preferred Stock during the
quarters ended December 31, 2008 and 2007.





-10-





DALECO
RESOURCES CORPORATION


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF DECEMBER 31, 2008 AND 2007





5.
            Notes
      Payable





During
November 2008, the Company made a principal payment of $25,000 on the $100,000
loan from First Regional Bank and entered into a new note for $75,000 with the
bank of which the maturity date is November 18, 2013 and the interest rate is
5.05%. The new note requires monthly payments of principal of $1,250 and
interest.





6.
            Audit
      Fee Refund





During
the three months ended December 31, 2007, the Company received $42,000 (plus
interest) in respect to fees charged by a prior auditor engaged by the Company
in fiscal 2004 while such auditor was not registered with the
PCAOB.


-11-





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





Forward
Looking Statements





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





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





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





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





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





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


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


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


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


·
            the
      timing, quantity and marketability of
  production;


·
            effectiveness
      of management’s strategies and
decisions;


·
            competition;


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


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


·
            climatic
      conditions; and


·
            unanticipated
      problems, issues or events.


-12-





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





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





Results of
Operations:





For
the three months ended December 31, 2008, compared to the three months ended
December 31, 2007:


Three Months Ended2008
                        
                        
                        2007Revenues
                        
                        $
                        198,643
                        
                        
                        $
                        241,513Net
      Loss
                        
                        $
                        (284,291
                        )
                        
                        $
                        (379,130
                        )Oil
      and Gas Production and Cost Information:Production:Oil
      (Bbl)
                        
                        
                        1,018
                        
                        
                        
                        872Gas
      (Mcf)
                        
                        
                        9,026
                        
                        
                        
                        12,376Average
      Price:Oil
      (per Bbl)
                        
                        $
                        57.94
                        
                        
                        $
                        89.23Gas
      (per Mcf)
                        
                        $
                        7.46
                        
                        
                        $
                        8.19Lease
      Operating Expense and Production Tax perMcfe
                        
                        $
                        3.15
                        
                        
                        $
                        3.57




______


Bbl   =
One barrel of oil or condensate


Mcf   =
One thousand cubic feet


Mcfe =
One thousand cubic feet gas equivalent





The
decrease in gas production experienced during the three months ended December
31, 2008 is primarily a result of declines in the gas-oil ratio from certain
producing wells operated by the Company in Texas and curtailments resulting from
third party maintenance of natural gas pipelines and processing facilities
servicing these properties.





The
decrease in Lease Operating Expenses and Production Tax per Mcfe is primarily
the result of the decrease in Lease Operating Expenses in three months ended
December 31, 2008.  Such expenses were greater in the first quarter of
the prior fiscal year primarily as a result of the workover expenses incurred to
maintain and enhance production of the Company’s properties in
Texas.





Minerals
Operations





The
Company is an Exploration Stage company in respect to its mineral
holdings.





Minerals
Exploration Expenses





Minerals
exploration expenses were $3,502 for the three months ended December 31, 2007.
The Company did not incur minerals exploration expenses in first quarter of this
fiscal year. These expenses are primarily for costs associated with the
exploration and quantification of mineral resources and mineral
reserves.


-13-





Minerals
Operating Expenses and Other Costs





Minerals
operating expenses and other costs decreased to $19,259 for the three months
ended December 31, 2008 as compared to $44,992 for the first quarter of the
prior fiscal year.  The decrease is primarily attributable to certain
lease payments related to the calcium carbonate and zeolite properties during
the three months ended December 31, 2007.





Depreciation,
Depletion and Amortization: Oil and Gas





Depreciation,
depletion and amortization (“DD&A”) totaled $46,492 and $43,950 for the
three months ended December 31, 2008 and 2007, respectively.





Depreciation,
Depletion and Amortization: Minerals





Depreciation,
depletion and amortization totaled $ 144,564 and $194,563 for the three months
ended December 31, 2008 and 2007, respectively. Such amounts include
amortization of Technology and Patent Rights of $144,363.





General
and Administrative Expenses





These
expenses decreased to $121,323 for the three months ended December 31, 2008 as
compared to $219,841 for the three months ended December 31,
2007.  The Company recorded stock-based compensation expense of
$22,464 and $62,107 during the three months ended December 31, 2008 and 2007,
respectively. See Note 3 of the Notes to Unaudited Consolidated Financial
Statements included in this interim report. General and administrative expenses
also decreased as a result of the Company’s decreased staff.





Legal
and Professional Fees and Expenses





These
expenses increased to $55,956 for the three months ended December 31, 2008 as
compared to $27,703 for the three months ended December 31, 2007.  The
increase is primarily attributed to increased professional fees related to
auditing services. During the three months ended December 31, 2007, the
Company’s professional fees were reduced by $42,000 which the Company received
in respect to fees charged by a prior auditor engaged by the Company in fiscal
2004 while such auditor was not registered with the PCAOB.





Interest
Expense





Interest
expense increased to $51,915 for the three months ended December 31, 2008, as
compared to $39,057 for the three months ended December 31, 2007. This increase
is primarily attributable to default interest rates associated with certain debt
as the Company has defaulted on certain required payments.





Liquidity
and Capital Resources





The
Company’s cash flow used in operating activities was $452,501 and $226,214 for
the three months ended December 31, 2008 and 2007, respectively. Funds have been
and are being deployed in efforts to enhance the commercial viability of the
Company’s existing resource assets, to identify potential expansion
opportunities and to retire obligations associated with the Company’s assets.
The Company’s net cash at December 31, 2008 was $15,316.


-14-





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





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





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





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





During
December 2007, Sonata loaned the Company $75,000 which the Company used to
satisfy certain delinquent vendor payables (see Note 5 of the Notes to Unaudited
Consolidated Financial Statements included in this interim report). This note
was repaid in May 2008 with a portion of the proceeds from the sale of the
Pennsylvania properties (see below).





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





Commercialization
of Existing Assets





The
Company is continuing to pursue plans to commercialize its calcium carbonate,
kaolin and zeolite projects which are critical for the Company to achieve
profitability and establishing the Company as a market innovator in industrial
minerals. Those plans have progressed from the data acquisition and analysis
phase into ongoing mineral processing and facility design phase. The Company and
its current partner and potential other partners are actively investigating
various commercial applications for its mineral based products.





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


-15-





The
venture, with the assistance of its consultants, has begun technical
presentations of the product formulations to entities active on both the demand
and supply sides of the coatings, fillers and pigments sectors of the paint and
paper industries. Preliminary feedback from these initial presentations has been
encouraging and has lead to follow-up discussions and submission of product
samples for prospective application testing. The final results of these
inquiries and testing are expected over the next several months. Tecumseh, as
the project’s manager, is proceeding with its efforts to prepare the mineral
deposit site for production. These efforts include the submittal of the required
regulatory filings and follow-up meetings with the representatives of the
various regulatory agencies responsible for the issuance of the extraction
permit for the project. Work continues on product identification and process
flow sheet design and is expected to be completed in the next few
months.





The
Company continues to focus on establishing business and/or financial
relationships that will provide the necessary capital to effectively exploit its
calcium carbonate and zeolite mineral resource holdings.  With respect
to the Company’s zeolite deposit, certain initial small scale tests have
progressed to the point where larger scalable pilot tests of commercial
applications are to be initiated.





Off-balance
Sheet Arrangements





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





Item
      3.
                Quantitative
      and Qualitative Disclosures About Market
Risk.





None





Item
      4.
            Controls
      and Procedures.





(a) Evaluation of Disclosure Controls
and Procedures. As of the end of the period covered by this Quarterly
Report on Form 10-Q, our Chief Executive Officer/Chief Financial Officer
evaluated, with the participation of management, the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)). Based upon this evaluation, our Chief Executive Officer/Chief Financial
Officer has concluded that our disclosure controls and procedures were effective
as of December 31, 2008 to ensure that information required to be disclosed
in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.





On December 31, 2008, the Company had
three employees.  All day-to-day financial matters are overseen by the
interim Chief Executive Officer/President/Chief Financial Officer with oversight
by the Board of Directors.  All contracting by the Company, for other
than everyday items, is done with the approval the entire Board of
Directors.





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





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


-16-





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





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





Code
of Ethics





The Board of Directors of the Company
has adopted a Code of Ethics (see Exhibit 14.1to the Company’s Annual
Report on Form 10-KSB for the fiscal year ended September 30, 2008)for
all of the Company's employees, officers and Directors.  Each officer
and Director of the Company annually affirms that he has read the Company’s Code
of Ethics and agrees to be bound thereby.





Item 4T.
            Controls
      and Procedures.





See
Item 4  above.


-17-


PART
II. OTHER INFORMATION





Item
      1.
              Legal
      Proceedings.





None





Item 1A.
              Risk
      Factors.





Not
required for smaller reporting companies.





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





None





Item 3.
              Defaults
      Upon Senior Securities.





None





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





None





Item 5.
              Other
      Information.





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





Item 6.
              Exhibits.





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





The
Registrant incorporates by reference its Exhibit List as attached to its Form
10-KSB for the fiscal year ended September 30, 2008.


-18-




SIGNATURES





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





DALECO
      RESOURCES CORPORATIONDated:  February
      18, 2009
                  /s/
      Gary J. NovinskieGary
      J. NovinskieInterim
      Chief Executive Officer, President, ChiefFinancial Officer and Director (Principal Executive Officerand
      Principal Financial Officer)Dated:  February
      18, 2009
                  /s/
      Richard W. BlackstoneRichard
      W. BlackstoneSecretary
      and Controller (Principal Accounting
Officer)




-19-