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 March 31, 2006
                               --------------

( )   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 of            (IRS Employer Identification Number)
incorporation or organization)

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 March 31,2006:
41,097,698 Number of shares outstanding of the issuer's Series A preferred stock
as of
March 31, 2006: 0
Number of shares  outstanding of the issuer's  Series B preferred  stock as of
March 31, 2006: 185,000


<PAGE>


                                      INDEX

                                                                            PAGE
PART I      FINANCIAL INFORMATION

ITEM 1      FINANCIAL STATEMENTS (Unaudited)
            Consolidated Balance Sheets....................................  3
            Consolidated Statements of Income (Loss).......................  5
            Consolidated Statements of Cash Flow...........................  6
            Consolidated Statements of Shareholder's Equity................  7
            Notes to Consolidated Financial Statements.....................  8

ITEM 2      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS...........................  32

ITEM 3      CONTROLS AND PROCEDURES.......................................  34

PART II     OTHER INFORMATION.............................................  37

ITEM 1      LEGAL PROCEEDINGS.............................................  37

ITEM 2      CHANGE IN SECURITIES..........................................  37

ITEM 3      HELLER DEBT...................................................  37

ITEM 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........  40

ITEM 5      OTHER INFORMATION.............................................  41

ITEM 6      Exhibits and Reports on Form 8-K..............................  42

SIGNATURES................................................................  43


                                      -2-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2006--PREPARED BY
MANAGEMENT (UNAUDITED)
================================================================================
                                                             2006
ASSETS
Current Assets
      Cash Accounts                                         $  1,185,121
      C/Ds                                                       532,477
      Accounts Receivable                                        392,539
      Prepaid Mineral Royalties S/T (note 5c)                      -----
      Other Current Assets                                         3,864
                                                                   -----
                         Total Current Assets               $  2,114,001
                                                            ------------
Other Assets
       Prepaid Mineral Royalties L/T  (note 5c)                 $654,567
       Debt Placement Costs                                      928,661
       Accumulated Amortization                                 (826,456)
             Net Debt Placement Costs                            102,205
       Equity Placement Costs                                     35,750
       Accumulated Amortization Equity Costs                      (7,174)
             Net Equity Placement                                 28,576
       Securities Available for Future Sale (note 6)             114,004
       Notes Receivable (Note 13c)                               576,000
                                                            $  1,475,352
                         Total Other Assets
Fixed Assets
       Oil and Gas Properties (note 3)                      $ 12,736,232
       Accumulated DD&A                                       (8,816,851)
             Net Oil and Gas Property                          3,919,381
       Mineral Properties (note 5)                            12,609,100
       Accumulated DD&A                                         (500,000)
             Net Mineral Property                             12,109,100
       Timber Properties (note 4)                              1,028,342
       Accumulated DD&A                                       (1,028,342)
             Net Timber Property                                   -----
       Technology/Patent Rights (note 6)                       6,707,000
       Accumulated DD&A                                       (3,291,034)
             Net Tech./Patent Rights                           3,415,966
       Property, Equipment, Furniture & Fixtures                 522,708
       Accum. Depr (P, E, P &  P)                               (515,943)
             Net (P, E, P & P)                                     6,765
                                                                   -----

             Total Fixed Assets                             $ 19,451,213
                                                            ------------
                                                            $ 23,040,565
                                                            ============
             Total Assets
         SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                      -3-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2006--PREPARED BY
MANAGEMENT (UNAUDITED)
================================================================================
                                                              2006
LIABILITIES
Current Liabilities
       Trade A/P                                            $   1,291,569
       Notes Payable (note 7 and 8d )                             140,435
       Note Due related Pty (note 8).                              45,485
       EVTS Note (note 7(f))                                      156,000
       Loans--1st Regional (note 10 b)                            100,000
       CAMI Note (note 7c)                                        514,881
       Sonata and Standard Energy  Financing (note 10a)            57,048
       Accrued Interest Expense (notes 7(c) 8 and 10)             446,833
       Accrued Dividend Expense (notes 11 and 14)               1,825,336
       Accrued Expense Reimbursements (notes 8)                   101,647
       Accrued Salary Expense (note 8)                            907,583
                                                                  -------
                                                            $   5,588,165
                                                            -------------
                           Total Current Liabilities

Long Term Liabilities
      Long Term Debt - EV&T,  (notes  7(f))                 $     553,000
                             Total Long Term Liabilities    $     553,000
                                                                 --------
                             Total Liabilities              $   6,141,165
                                                            -------------
EQUITY
      Beginning Retained Earnings                           $ (25,854,885)
      Current Period Income/(loss)                               (427,502)
      Other Comprehensive Income (Loss)                            (1,688)
      Dividends Paid (Cash & Stock)                                 -----
      Add. Paid in Capital (See Note 11)                       42,771,996
      Preferred Stock (note 11)                                     1,850
      Common Stock (note 11)                                      410,977

                                   Total Equity             $  16,900,749
                                                            -------------
                            Total Liabilities and Equity    $  23,040,565
                                                            =============


           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                      -4-
<PAGE>


<TABLE>
<CAPTION>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE QUARTERS ENDED AND SIX MONTHS
ENDED MARCH 31, 2006 AND 2005--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
                                                                  3 Months Ended                   6 Months Ended
                                                                  2006            2005            2006            2005
                                                                  ----            ----            ----            ----
<S>                                                       <C>             <C>             <C>             <C>
Revenue
     O&G Sales                                                 520,760    $    394,352         932,103    $    689,092
     Royalty Receipts                                           22,505           9,670          41,741          20,794
     Mineral Sales                                               1,145           8,198           9,481          21,237
     Well Management                                            40,006          41,506          80,012          83,012
                                                          ------------    ------------    ------------    ------------
         Total revenue                                    $    584,416    $    453,726    $  1,063,337    $    814,135
                                                          ------------    ------------    ------------    ------------

Expenses
     LOE - Oil and Gas                                    $    209,977    $    123,599    $    332,168    $    314,835
     LOE - Timber                                                   --              --              --              --
     LOE--Minerals                                                 150           3,950           9,733          19,450
     Prod Tax                                                   60,551          27,807          94,197          50,638
     DD&A (Fixed Assets)                                       350,504         347,209         698,509         732,275
     Third Party Distributions                                      --              --          27,636          10,308
     General and Administrative Expenses                       257,810         199,965         460,199         362,695
     Legal and Professional Fees                                49,047          95,397         124,110         152,255
     Shareholder Information                                    26,068          13,575         32,9668          17,771
     Amortization of Debt Costs                                 31,164          24,914          62,329          49,829
     Amortization of Goodwill                                    3,054             225           5,525             450
                                                          ------------    ------------    ------------    ------------
         Total Expenses                                   $    988,325    $    836,641    $  1,847,372    $  1,710,506
                                                          ------------    ------------    ------------    ------------

Operating income (loss)                                   $   (403,909)   $   (382,915)   $   (784,035)   $   (896,371)
Other income (expenses)
     Gain on Exchange of PSNet Shares for Ostara Shares             --          40,402              --          40,402
     Interest Income                                             4,489               7           4,489               7
     Interest Expense                                          (28,082)       (168,789)        (59,573)       (207,278)
     Other Income                                                   --              --        (311,400)         24,800
                                                          ------------    ------------    ------------    ------------
         Total other income (loss), net                   $    (23,593)   $   (128,380)       (366,484)   $   (142,069)
                                                          ------------    ------------                    ------------

Loss before provision for income taxes                    $   (427,502)   $   (511,295)   $ (1,150,519)   $ (1,038,440)
Provision for income taxes                                          --              --              --              --
                                                          ------------    ------------    ------------    ------------
Net Loss (Note 10)                                        $   (427,502)   $   (511,295)   $ (1,150,519)   $ (1,038,440)
                                                          ============    ============    ============    ============


Less: Dividends on Class A and B preferred shares                   --         (36,630)             --         (83,907)
                                                          ------------    ------------    ------------    ------------

Net loss attributable to common shareholders              $   (427,502)   $   (547,925)   $ (1,150,519)   $ (1,122,347)
                                                          ------------    ============    ============    ============

Basic and Fully Diluted Net Loss per Common Share                ($.01)          ($.02)          ($.03)          ($.04)
Weighted average number of shares of
         Common shares outstanding
         Basic                                              41,097,647      28,693,043      41,097,647      28,693,043
         Diluted                                            54,520,003      38,142,622      54,520,003      38,142,622
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                      -5-
<PAGE>


<TABLE>
<CAPTION>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE QUARTERS ENDED AND SIX MONTHS
ENDED MARCH 31, 2006 AND 2005--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

                                                                      3 Months Ended                  6 Months Ended
                                                                      --------------                  --------------
                                                                  2006            2005            2006            2005
                                                                  ----            ----            ----            ----
<S>                                                       <C>             <C>             <C>             <C>
Operating Activities
Net Income/( loss) for the period                         $   (427,502)   $   (511,295)   $ (1,150,519)   $ (1,038,440)
                                                          ------------    ------------    ------------    ------------
Items not affecting working capital
     Change in DD & A for period                          $    350,504    $    347,209    $    698,509    $    732,275
     Debt Amortization                                          34,218          25,139          67,854          50,279
     Gain on Debt Forgiveness                                       --              --              --              --
     Gain on Exchange of PSNet Shares for Ostara Shares             --         (40,402)             --         (40,402)
     Charge of Issuance of Securities                               --              --         311,400              --
                                                          ------------    ------------    ------------    ------------
                  Sub Total                               $    384,722    $    331,946    $  1,077,763    $    742,152
                                                          ------------    ------------    ------------    ------------
Items affecting Working Capital:
     (Increase) Decrease in other assets                  $         --    $   (171,836)   $         --    $   (212,436)
     (Increase) Decrease in accounts receivable                 92,706         (39,054)        176,782         (15,794)
     Increase (Decrease) in Trade payables                     209,968         (24,282)        481,761          83,006
     Increase.(Decrease) in other Accrued Expenses              (4,330)        102,247         (21,084)        176,464
     Gain/(loss) on Sale of Properties                              --              --              --              --
                                                          ------------    ------------    ------------    ------------
                  Sub Total                               $    298,344    $   (132,925)   $    637,459    $     31,240
                                                          ------------    ------------    ------------    ------------

Cash used for operating activities                        $    255,564    $   (312,274)   $    564,703    $   (265,048)
                                                          ------------    ------------    ------------    ------------

Investing Activities
     Sale of fixed assets                                 $    (90,135)   $    542,621    $   (110,135)   $    542,621
                                                          ------------    ------------    ------------    ------------
Cash provided from investing activities                   $    (90,135)   $    542,621    $   (110,135)   $    542,621
                                                          ------------    ------------    ------------    ------------

Financing Activities
     Increase (decrease) Notes due Related Parties        $         --    $         --    $    (25,000)   $     30,300
     Increase (decrease) Other Notes due                      (166,539)        (33,900)       (322,028)       (103,052)
     Increase (decrease) Accrued Interest                       13,089          27,881          13,789         185,942
     Increase (decrease) Accrued Dividends                          --          91,388              --        (198,242)
     Dividends Paid                                                 --        (370,785)             --        (370,785)
     Proceeds of Equity Issuance                                20,301              --          45,307         100,150
     Proceeds of L/ T Debt -                                        --              --              --              --
                                                          ------------    ------------    ------------    ------------
Cash provided from/(used for) financing activities        $   (133,149)   $   (285,416)   $   (287,932)   $   (355,687)
                                                          ------------    ------------    ------------    ------------
Net Increase/(decrease) in cash for period                $     32,280    $    (55,069)   $    166,636    $    (78,114)
                                                          ============    ============    ============    ============

Cash and cash equivalents - Beginning of Period           $  1,685,318    $    375,963    $  1,550,962    $    399,008
Cash and cash equivalents - End of Period                 $  1,717,598    $    320,894    $  1,717,598    $    320,894
                                                          ------------    ------------    ------------    ------------

Supplementary Disclosure of Non-cash Transactions
Conversion from convertible debt to common stock          $         --    $         --    $     25,000    $         --
Conversion from preferred shares to long term debt        $         --    $         --    $         --    $         --
Issuance of common stock for services performed           $     20,301    $         --    $    331,701    $    100,150
Dividends paid on preferred stock with common stock                 --    $    398,393    $         --    $    398,393
Issuance of common stock under private placement          $         --    $         --    $         --    $         --
</TABLE>
           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                      -6-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY FOR THE THREE MONTHS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

                                                              2006
                                                    =========================
Common Stock Outstanding
        Shares
                Beginning of Period                 40,988,498
                Issued                                 109,200
                Cancelled                                    0
                                                             -
                End of Period                       41,097,698
     Value at Par ($.01/Share)                                   $    410,977

Preferred Stock Outstanding
     Shares Class "A"
                Beginning of Period                          0
                Present as Debt                              0
                End of Period                                0
Value at Par ($.01/Share)                                                  --

     Shares Class "B"
                Beginning of Period                    185,000
                Issued                                       0
                Converted to Common                          0
                Cancelled                                    0
                End of Period                          185,000
     Value at Par ($.01/Share)                                   $      1,850
                                                                 ------------
     Preferred Value at Par ($.01/Share)                         $      1,850

Additional Paid in Capital
                Beginning of Period                              $ 42,745,788
                Equity Issuance Other                                  26,208
                Excess of Redemption Amount                                --
                                                                           --
                End of Period                                    $ 42,771,996
                                                                 ------------

Accumulated Retained
Earnings/(Deficit)
                Beginning of Period                              $(25,854,885)
                Income(Loss) for Period                              (427,502)
                Other Comprehensive Income (Loss)                      (1,688)
                                                                 ------------
                Dividends (Property)                                       --
                                                                           --
                End of Period                                    $(26,284,075)

Equity
                Beginning of Period                              $ 17,302,629
                End of Period                                    $ 16,900,749
                                                                 ------------
                Change in Equity for Period                      $   (401,880)

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                      -7-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

1.    CONTINUED OPERATIONS

      The financial statements have been prepared on the basis that assumes the
Company is 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
March 31, 2006, the Company has reported a loss of $427,502. The ability of the
Company to meet its total liabilities of $6,141,165 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.

      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"). On
November 7, 2005, the Equity Line of Credit expired and the Company elected not
to renew it.

      On September 15, 2005, the Company concluded a Private Placement of
6,500,000 shares of its Common Stock at a price of $.25 per share. (See Footnote
11 below). The proceeds of this offering ($1,625,000) were used to satisfy the
Kane Debt. (See Footnote 14a below), retire some debt of the Company (See
Footnotes 7 and 8 below) and provide working capital. Additionally, the
Company's agreements with Tecumseh Professional Associates for the operating,
mining and marketing of the Company's Calcium Carbonate and Sierra Kaolin(TM)
has substantially reduced the Company's need for present and future operating
capital.

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

      As of March 31, 2006, the Company and certain of its subsidiaries were in
default of certain debt obligations (See Notes 7 and 8 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 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.


                                      -8-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- 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 Daleco and its wholly-owned subsidiaries
Westlands Resources Corporation, Sustainable Forest Industries Inc., Deven
Resources, Inc., Tri-Coastal Energy, L.P., Clean Age Minerals, Incorporated, CA
Properties, Inc., and The Natural Resources Exchange, Inc. The Company's
investments in oil and gas leases are accounted for using proportionate
consolidation whereby the Company's prorata 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 Company's investments in
minerals are accounted for using purchase 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 proved 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 proved developed leases are charged to income on the
units of production basis based upon total proved reserves. The capitalized
costs of these proved developed leases are written down to their projected net
recoverable amount.

      Costs of exploratory wells found to be dry during the year 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 proved 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 estimated
operating and production expenses.

      Effective in August 2001, the Company began 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. 144 (SFAS
144), Accounting for the Impairment or Disposal of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. Under this method, the 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 144 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 and the related environmental
patent.


                                      -9-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

      d. Site restoration, dismantlement and abandonment costs

      The salvage value of the Company's producing wells or mining related
assets 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. Since, to date, all mining and
exploration of the Company's mineral deposits is conducted by contract mining
companies, the Company has not accrued any specific mine restoration costs. As
the mining activity increases, the Company may accrue site restoration costs as
appropriate.

      e.    Property and Equipment

      Property and equipment are recorded at cost and depreciated using the
straight-line method over a period of three to seven years. The carrying value
of property and equipment may be 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 recorded the acquisition of timber rights at cost. The Company
has completely written down the costs of the timber rights acquisition.

      g.    Mineral Acquisition

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

      h.    Debt Issue Costs

      Debt issue costs represent those costs associated with the restructuring
of the Heller Financial, Inc. loan and conversion to the Sonata Note in Fiscal
2004, as well as its Lucas and Kane Bridge Financings (See Note 10(a)). These
costs are being amortized over the term of the Notes. As of March 31, 2006, the
un-amortized debt issuance costs on the Company's books amounted to $102,205.

      i.    Cash and Cash Equivalents

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


                                      -10-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

      j.    Fair Value of Financial Instruments

      Cash and cash equivalents, receivables, and all liabilities have fair
values approximating carrying amounts. 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
                                                          3/31/2006
                                                          ---------

Proven lease acreage costs                              $  5,448,142


Proven undeveloped lease acreage costs                  $  1,745,810

Well costs                                              $  5,542,280
                                                        ------------
                                                        $ 12,736,232

Accumulated depletion, depreciation and amortization    ($ 8,816,851)

Residual Book Value                                     $  3,919,381

(a)   Sale of Oil and Gas Properties


      In fiscal 2004, the Company sold its working interests in 34 wells located
in Pontotoc County, Oklahoma. In the aggregate, the value of this group of wells
to the Company did not exceed their net abandonment liabilities. As such, the
wells were sold for the assumption of those contingent liabilities. In December
2004, the Company's loan from Heller Financial, Inc. was acquired by Sonata.
(See Footnote 7 below.)

4.    Timber Rights

      As a result of the "in-country" economics for harvesting and ready access
to available raw timber supplies through inter-entity arrangements, the Company
has not renewed its concession rights. The Company is seeking to divest its
timber interests.

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 one
      subsidiary, CA Properties, Inc. ("CAP").


                                      -11-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

      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) twenty eight (28) mining claims located in
      Sierra County, New Mexico covering 2,675 acres(+/-) of kaolin; and (d)
      eleven (11) zeolite mining claims covering approximately 220 acres(+/-)
      located in Beaver County, Utah.

      On or about February 14, 2005, the Company entered into a Development and
      Operating Agreement with Tecumseh Professional Associates ("TPA") covering
      the Company's Calcium Carbonate lease in Cibola County, New Mexico. On or
      about March 11, 2005, the Company entered into the Sierra Kaolin(TM)
      Operating Agreement with TPA covering the Company's Kaolin Claims in
      Sierra County, New Mexico. Under these agreements, TPA has assumed the
      duties to mine, test and market the Company's Sierra Kaolin(TM) and
      Calcium Carbonate. (See Footnote 5.c below).

b.     Minerals and Equipment

                                                  3/31/2006
                                                  ---------
      Proven undeveloped lease costs           $ 12,609,100
      Mine development costs                              0
      Accumulated depletion and                    (500,000)
         depreciation
      Residual Book Value                      $ 12,109,100


      (1) The Company has begun to amortize its mineral properties at a nominal
      amortization rate of $200,000 per year subject to higher adjustments per
      year as production increases. During the three months ended March 31,
      2006, the Company took a charge of $50,000 towards the annual amount. The
      Company is utilizing a modified unit-of-production basis in determining
      its amortization rates for its mineral properties.

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 2005 operations were conducted on the Company's
      Sierra Kaolin(TM) deposits in Sierra County, New Mexico by TPA for the
      purpose of confirming the quantity and quality of the Sierra Kaolin(TM)
      and to provide samples to prospective customers. The Company's Calcium
      Carbonate properties were operated initially by the Company and,
      commencing in February 2005, by TPA. The Company continued production of
      its Zeolite for use in its sales of ReNuGen (trademark applied for) and
      for testing in air and purification and soil decontamination. The Company
      began the commercial sales of one of its CA Series Products under the
      "ReNuGen" (trademark applied for) in the first quarter of 2004 and
      continued these in Fiscal Year 2005.


                                      -12-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

6.    Patents & Technology

      a. CA Series Patent. 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, deals
      with a reagent and process for the remediation of water and contaminated
      soils. The Company has applied for the trademark "ReNuGen for its CA-1
      Series for use in waste treatment plants. It also has applied for the
      trademark "Sierra Gold" for one of its calcium carbonate products.

      b. I-Squared and I-Top Technology. Pursuant to an agreement effective
      December 1, 2004 ("Asset Sale Agreement") the Registrant agreed to sell
      its I-Squared and I-Top technology to PSNet Communications in exchange for
      3,000,000 shares of PSNet common stock ("PSNet Shares"). Of the PSNet
      Shares to be issued, two-thirds of the PSNet Shares were to be issued to
      the shareholders of the Registrant and one-third of the PSNet Shares were
      to be issued to the Registrant. Under the terms of the Asset Sale
      Agreement, the Registrant is prohibited from selling the PSNet Shares it
      received in the transaction for a period of one year after the Closing
      Date. The "Closing Date" for the transaction was initially established as
      December 10, 2004 or such other mutually agreeable date. The Asset
      Purchase Agreement required PSNet to file a registration statement with
      the Securities and Exchange Commission to register the PSNet Shares so
      that the PSNet Shares issued to the Registrant's shareholders would be
      freely trading shares. The Registrant and PSNet agreed to extend the
      Closing Date until PSNet's registration statement became effective and it
      had the requisite number of freely trading PSNet Shares required for
      distribution to the Registrant's shareholders as of the Record Date (as
      that term is defined below). The Asset Purchase Agreement required PSNet
      to use its best efforts to have an effective date for its registration
      statement of on or before March 31, 2005. There was no market for the
      PSNet Shares at the time the Company entered into the Asset Purchase
      Agreement.

      In a press release dated January 13, 2005, Ostara Corporation ("Ostara")
      announced that it had acquired PSNet. As successor in interest to PSNet,
      commencing on or about March 31, 2005, Ostara issued its common stock to
      the Registrant and its shareholders of record as of January 6, 2005
      ("Record Date) in place of the PSNet Shares. In accordance with the
      provisions of the Asset Sale Agreement, approximately 2,050,000 shares of
      Ostara common stock were issued, in the nature of a special dividend, to
      the shareholders of record of the Registrant as of the Record Date. The
      Registrant received 950,000 shares of Ostara common stock that cannot be
      sold for a period of one year. Warrants for 15,000,000 shares of Ostara
      common stock were also issued under the Asset Sale Agreement. For each
      share of Ostara common stock issued to the Registrant's shareholders as of
      the Record Date, five warrants were also issued. The warrants have a term
      of one (1) year and have an exercise price as follows:


                                      -13-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

            a. For the first 90 days after the Closing Date, the exercise price
      per share of Stock shall be $2.00.
            b. For the 91st through the 180th day after the Closing Date, the
      exercise price per share of Stock shall be $4.00.
            c. For the 181st day through the 270th day after the Closing Date,
      the exercise price per share of Stock shall be $6.00.
            d. For the 271st day through the first anniversary of the Closing
      Date the exercise price per share of Stock shall be $8.00.

      One share of Ostara common stock was issued for each 14 shares of the
      Registrant's common stock held as of the Record Date. In addition to the
      Ostara common stock issued, each Record Date Shareholder received a
      warrant to purchase (5) additional shares of Ostara common stock for each
      share of Ostara common stock issued.

      Since the Company had effective equitable title to the original 3,000,000
      shares of Ostara common stock as of January 13, 2005 (the date Ostara
      reported the acquisition of PSNet) and thus "beneficial ownership" of
      those shares until they were distributed to the Company's shareholders,
      the Company recognized as a gain from the exchange of securities (PSNet
      shares for Ostara shares) of $40,402. This amount reflects both the market
      price of the Ostara common stock and the calculated value of the
      associated warrants on January 13, 2005.

            As of March 31, 2006, the 950,031 shares of Ostara common stock held
      by the Company were carried at $114,009 Since the market price for the
      Ostara common shares has not exceeded the prevailing warrant exercise
      price, the warrants associated with the transaction were not exercised by
      the Company and have expired in accordance with their terms.

7.    Notes Payable

a.    Kane Note: On or about August 15, 2005, the Company's obligation to the
      Kanes was fully satisfied. (See Note 14a). The Series A Preferred Shares
      owned by the Kanes were reacquired by the Company and cancelled on the
      books of the Company.

b.    July 1998 Notes: During fiscal 1998, the Company borrowed $145,000 from
      four (4) persons. As of March 31, 2006, all of the said Notes had been
      satisfied.


                                      -14-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

c.    Clean Age Acquisition  Note:  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 March 31,
      2006, the total amount  payable on these notes is $741,431  representing
      principal of $514,881 and accrued but unpaid interest of $226,550.

d.    Lucas Note: On or about  September 1, 2004,  the Company's  wholly owned
      subsidiary, CA Properties,  Inc. borrowed $40,000 from Herbert L. Lucas,
      an individual and former director of Clean Age Minerals,  Inc. Mr. Lucas
      is owed  additional  sums from the  Company's  acquisition  of Clean Age
      Minerals,  Inc. in  September  2000 (See Note 8(b)  below).  The note is
      due on or before August 31, 2006,  and earns  interest at the Prime Rate
      of  interest   charged  from  time  to  time  by  PNC   National   Bank,
      Philadelphia,  Pennsylvania, plus 3%. Payments of principal were to have
      commenced on October 1, 2004 in 24 equal  installments  plus accrued and
      unpaid  interest  through  the date of  payment.  In  consideration  for
      making the Loan,  Mr. Lucas was granted  Warrants  for 20,000  shares of
      common  stock.  The  exercise  price of the Warrants is $0.44 per share.
      The warrants expire on August 31, 2006.

      As of March 31, 2006, $22,892 is owed to Mr. Lucas and is classified as
      short-term debt and $322 in accrued interest.

e.    May 2005 Note: On May 10, 2005, the Company  borrowed  $50,000 from four
      (4)  individuals,  Steven P. Roche  ($20,000) and David Grady  ($10,000)
      each of whom are employees of Tecumseh Professional  Associates,  Thomas
      Smith  ($10,000) and Alfonso Knoll  ($10,000).  Mr. Knoll was a Director
      of the Company at the time of the loan and served as the  Interim  Chief
      Executive  Officer of the Company  from May though July 2005.  Mr. Roche
      served as a member of the Board of  Directors  of the Company  from July
      2005  through  March 2006.  (See 8-k dated July 19,  2005).  Each lender
      was given a Note for his loan by the  Company.  The Note  matures on May
      10, 2006 at an interest  rate equal to the Federal Funds Rate on May 10,
      2005.  Additionally,  each  lender  received  50,000  shares of  Company
      common  stock  for each  $10,000  lent to the  Company.  As of March 31,
      2006,   the  Smith  and  Grady  Notes  have  been  retired.   The  total
      outstanding  principal  and  interest  on the  remaining  two  notes  is
      $30,806.

 f.   EV&T Note:  On September  30,  2005,  but  effective as of  September 1,
      2005  ("Effective   Date"),   the  Company  entered  into  a  Settlement
      Agreement with and issued a Note to its counsel,  Ehmann, Van Denbergh &
      Trainor,   P.C.   ("EV&T")  to  resolve  and  deal  with  the  Company's
      outstanding  legal fees. As of September 1, 2005,  the Company owed EV&T
      $825,355 for services performed,  costs and expenses ("Debt"). Under the
      Agreement,  the Company  paid EV&T $25,355 and entered into a three year
      Note for the remainder of the Debt. The Note and Agreement  provides for
      Debt to earn  interest at the rate of five percent (5%) per annum on the
      outstanding  balance  from time to time.  The Debt is to be repaid in 35
      monthly  installments  of $13,000,  commencing on October 1, 2005,  with
      the  remainder due and payable on August 1, 2008  ("Remainder  Amount").
      The  Remainder  Amount  shall be paid:  (1) one  half in  Daleco  Common
      Stock,  valued at fifty  cents  ($.50) per share;  and (2)  one-half  in
      immediately  available  Federal Funds unless EV&T elects to take some or
      all of such balance in Daleco Common Stock valued at One Dollar  ($1.00)
      per share.  The Debt shall become  immediately due and payable on a date
      prior to August 1, 2008 if:  (x) the  Company is  acquired  for stock or
      cash,  whether by  purchase  or merger;  (y) the sale of an asset of the
      Company for a price in excess of $5 Million Dollars;  or (z) the Company
      raises,  other than debt,  an amount  greater  than $5 Million  dollars.
      Should the Note go into  default,  the interest  rate shall  increase to
      12% per annum and the entire  outstanding  principal and all accrued and
      unpaid  interest  shall   immediately   become  payable  in  immediately
      available  Federal Funds.  As of March 31, 2006, the current  portion of
      the EV&T Note is $156,000, and the long term portion is $553,000.


                                      -15-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

8.    Due to Related Parties

(a)   Due to 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% in the principal amount of $91,062. This principal amount has been
      satisfied as of March 31, 2006.

      (2) Note dated October 1, 1995, bearing interest at the rate of 7% as a
      result of various subsequent advances to the Company. The principal amount
      as of March 31, 2006, is $45,485.

      (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. This principal amount has been
      satisfied as of March 31, 2006.

      (4) Note dated June 17, 2002, bearing interest at the rate of 7% in the
      principal amount of $137,000. This principal amount has been satisfied as
      of March 31, 2006.


                                      -16-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

            As of March 31, 2006, the outstanding principal and accrued but
      unpaid interest on the obligations listed under numbers 1 through 4 to Mr.
      Amir amounted to $215,359, which includes $45,485 in principal and
      $170,074 in accrued interest.

      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 $59,338 of
      which $59,338 remains outstanding as of March 31, 2006 (See Note 7(a) and
      Note 14(a)).

      As of March 31, 2006, the Company owed Mr. Amir $41,190 in un-reimbursed
      business expenses and $245,835 in accrued but unpaid salary.

      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 March 31, 2006, the Company was indebted to Mr. Amir in the
      aggregate amount of $586,922

(b)   Due  to  Martin:   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 been  satisfied on or before  September  18, 2001,  but
      was not and remains  outstanding.  As of March 31, 2006, the Martin Debt
      amounts to $193,936  representing  $134,811 in principal  and $59,125 in
      accrued  but  unpaid  interest  (see  Note  7(c)).  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 March 31, 2006,  the Company owed
      Mr.  Martin  $245,835  in salary  and  $19,051  in  unpaid  reimbursable
      business  expenses.  As of March 31,  2006,  the Company was indebted to
      Mr. Martin in the aggregate amount of $458,822.


(c)   Due to Novinskie:. 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,
      2006, the Company owed Mr. Novinskie $302,385 consisting of $31,546 in
      un-reimbursed expenses, $245,839 in salary and $25,000 in bonuses.


                                      -17-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

(d)   Due to Erlich. In 1996, Mr. Erlich entered into an unsecured loan to the
      Company in the aggregate amount of $87, 543. The loan has no maturity
      date. The loan earns interest at the rate of 9% per annum. As of March 31,
      2006, an aggregate amount of $136,625 is due Mr. Erlich. This amount
      consists of $87,543 in principal and $49,082 in accrued interest.

9.    Debenture

      The Company has no Debentures issued or outstanding.

10.   Debt

      Debt of the Company consists of the following:

      a.    Sonata Loan:

            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
      ("Heller Loan"). 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 the sole shareholder of Tri-Coastal Energy, Inc.

            On December 30, 2003, Sonata Investment Company, Ltd., ("Sonata") an
      affiliate of Standard Energy Company of Columbus, Ohio, purchased the
      Heller Loan for $605,000. Sonata simultaneously entered into an agreement
      with Tri-Coastal and the Company whereby Sonata would advance to
      Tri-Coastal/Daleco an additional $50,000 for working capital and reduce
      the amount of the Heller Loan to $655,000 ("Second Amended Loan
      Agreement"). In consideration of Sonata's reduction of the Heller Loan
      from $5,154,783 to $655,000, Daleco agreed to:

            (1) issue to Sonata or its nominee 250,000 shares of Daleco Common
      Stock (see Note 11);

            (2) grant Sonata or its nominee warrants for 250,000 shares of
      Daleco Common Stock at $.906 per share with an expiration date of December
      31, 2007 (see Note 11(b)); and extend the expiration dates for the
      warrants currently held by Sonata until December 31, 2007 (see Note 11
      (b))


                                      -18-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

            On December 31, 2003, Sonata acquired the Heller Loan from Heller
      Financial, Inc. for $605,000. Tri-Coastal made a principal reduction
      payment of $23,298 to Sonata on December 31, 2003. This payment was
      consistent with the provisions of both the Heller Loan and the Sonata Loan
      and was made in the ordinary course.

            Tri-Coastal, Sonata and Daleco entered into a Second Amended Loan
      Agreement amending the Heller Loan Agreement dated August 22, 1997
      ("Heller Loan Agreement") and the First Amended Loan Agreement dated March
      27, 1998 ("First Amended Loan Agreement") (hereinafter the Heller Loan
      Agreement, First Amended Loan Agreement and the Second Amended Loan
      Agreement are collectively referred to as the "Sonata Loan Agreement").

            The Second Amended Loan Agreement provides that the Heller Loan: (i)
      was reduced to a three (3) year loan in the principal amount of $655,000
      plus interest at the prime rates, to move, as established by the National
      City Bank, Columbus, Ohio, plus 3%; (ii) will be repaid out of 85% of the
      net revenues from Tri-Coastal's oil and gas properties, but in no event
      will the amount of interest and principal paid in any six month period be
      less than one-sixth of the original face amount of the Sonata Loan, less
      any prepayments, plus all accrued and unpaid interest with the full amount
      of the Sonata Loan plus all accrued and unpaid interest paid in full on or
      before December 30, 2006; (iii) 66 2/3rds of the net cash flow from
      production from Tri-Coastal's assets after satisfaction of the Sonata
      Loan; (iv) the issuance of stock and warrants as set forth above; and (v)
      Daleco's guaranty of the Sonata Loan.

            Under the terms of the Sonata Loan Agreement, the Sonata Loan will
      become a general obligation of the Company.

            As a result of the purchase of the Heller Loan and the entry into
      the Sonata Loan Agreement, the Company realized and recorded in the first
      fiscal quarter of 2004:

            (1)   Reduction of the Heller Loan from $5,154,783 to $655,000;

            (2) Reduction in accrued interest payable of $1,572,000;

            (3) Transaction costs recorded as Debt Placement Costs on the
      Balance Sheet of $285,046 consisting of:

                  (a)   $226,500 for issuance of the 250,000 shares of common
                        stock;

                  (b)   $48,546 for the extension of warrants held by Sonata;
                        and $10,000 in legal costs associated with the
                        transaction.


                                      -19-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

      At March 31, 2006, the amount owed to Sonata under the above Loan
      Agreement is $57,048 which is classified as short-term debt.


      b. First Regional Bank Loan:

      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, 2006. The loan is secured by the personal assets of
      Dov Amir, an officer and Director of the Company.


                                      -20-
<PAGE>


<TABLE>
<CAPTION>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

11.   (a)   Capital Stock
                                                                                           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(1)   $0.01 PER SHARE (1)  PER SHARE (1)
                                             ------------------   -------------------  -------------
<S>                                          <C>                  <C>                  <C>
Balance as of March 31, 2005                         28,693,043                    0         185,000

Issued pursuant to the exercise of                    3,000,000
Options (Note 2)

Issued pursuant to Private Placement                  6,500,000
(9/05) (Note 3.b)

Issued for the payments of                              100,000
services (S-8) (Note 5)

Issued for payment of                                   250,000
financing fee (Note 3.a)

Issued pursuant to Stock Purchase                     1,800,000
Agreement under
Employment Agreements (Note 4)

Issued pursuant to the exercise of                       45,455
Warrants (Note 6)

Issued pursuant to Special Stock Award                  600,000
for Directors Services (Note 7)

Issued pursuant to Private Placement terms              109,200
For Placement Agent fees

Ending Balance as of March 31, 2006                  41,097,698                              185,000
</TABLE>


(1) On March 16, 2006, the shareholders approved the increase in the
    authorized number of shares of common stock from 50,000,000 to 100,000,000
    shares, par value $0.01.The Articles of Incorporation of the Company
    authorize 20,000,000 shares of preferred stock, par value $0.01.

(2) In April and August of 2005, certain employees and individuals exercised
    expiring Options priced at $0.25 per share.

(3) In Fiscal 2005, the Company had the following private placement of
    securities:

    (a) On May 10, 2005, the Company raised $50,000 for an interim payment on
    the Kane Debt. As additional consideration for the loans, the four persons
    were given a total of 250, 000 shares of stock. (See footnote 7(e)).


                                      -21-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

    (b) On September 15, 2005, the Company closed a private placement for
    6,500,000 shares of Common Stock at $.25 per share. (See footnote 11 Options
    and Warrants below).

(4) Under this employment agreement (see footnote 13(c)), Mr. Benediktson was
    offered the right to purchase 1,000,000 shares of common stock at the price
    of $.37 per share. Mr. Benediktson exercised this right on or about
    September 6, 2005. Under his employment agreement (See footnote 13(c)), Mr.
    Trynin was offered the right to purchase up to 800,000 shares of common
    stock at a price of $.37 per share. Mr. Trynin exercised this right on or
    about September 6, 2005.

(5) The Company issued 20,000 shares of common stock to William Smith in
    consideration and payment of his consulting activities pertaining to the
    development of the ReNuGen (trademark applied for) product. The Company
    issued 100,000 shares of common stock to Thomas R. Smith in consideration of
    his services in connection with the handling of the Company's obligation to
    the Kane Interests.

(6) In October 2005, Mr. Amir exercised the warrant attached to his July 1998
    Note for 45, 455 shares of Common Stock. (See Footnote 7(b). The exercise
    price was $.55 per share.

(7) 600,000 shares of stock were granted to two directors for serving on a
    Special Committee of the Board of Directors to identify and recruit new
    management and independent directors for the Company. These shares were
    approved by the Shareholders at the Annual Meeting on Shareholders on March
    16, 2006.

(8) Under the terms of the Company's Private Placement (see footnote 3(b)
    above), Placement agent fees amounting to 7% of the funds raised directly
    through the agent were paid in common stock to the agents. Through the close
    of the quarter ending March 31, 2006, a total of 109,200 shares have been
    issued in accordance with the placement offering terms.


                                      -22-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

      (b) Options and Warrants: The Company granted the following options /
warrants to purchase common stock as of March 31, 2006.


                                                         Weighted
                                            Number of     Average
                                            Options /    Price per
                                             Warrants     Share
                                           ----------   ----------

Options / Warrants Outstanding -
March 31, 2005                              7,969,579   $     0.53

Employee Stock Option
Granted(1)                                    950,000
Expired
Exercised(2)                                3,000,000
Cancelled(3)                                   50,000

Stockholder warrants
Granted(4)                                  6,500,000
Expired(5)                                     81,819
Exercised (6)                                  45,455
Cancelled

Options / Warrants Outstanding -
March 31, 2006                             11,942,305   $     1.13



(1)   On March 10, 2006, but effective as of January 15, 2006, the Company
      granted Richard A. Thibault options for 500,000 shares as part of his
      Employment Agreement. As a result of his being elected to the Board of
      Directors, Mr. Maxwell has received options for 200,000 shares under the
      Company's Independent Director's Incentive Stock Option Plan. An
      additional 250,000 options were granted to David L. Matz under his
      Employment Agreement dated January 23, 2006.

(2)   Options for 3,000,000 shares were exercised in Fiscal 2005. These options
      were issued on September 18, 2000, with a five (5) year term and had an
      exercise price of $.25 per share. Of the options exercised, 2,381,300 were
      held by current officers, a director and employees of the Company. A
      former director or those who had purchased options from an employee held
      the remaining 648,700 options.


                                      -23-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

(3)   On May 16, 2005, options for 50,000 shares awarded under the Independent
      Director's Incentive Stock Option Plan to Mr. Pryor were cancelled upon
      his resignation as a director of the Company.

(4)   On September 21, 2005, the Company closed a private placement for
      6,500,000 shares (See footnote 11 Common Stock above). The investors
      received warrants for 6,500,000 shares of common stock. These warrants are
      exercisable in two tranches. The first tranche consists of one warrant for
      one share of common stock for each two shares of common stock purchased by
      the investor in the private placement ("Participation Warrant"). The
      exercise price for the Participation Warrant is $1.00 per share. The
      Participation Warrant must be exercised on or before the close of business
      on September 20, 2006. If and only if the investor exercises the
      Participation Warrant, the investor will be entitled to exercise the
      second tranche warrant, consisting of a warrant for one share of common
      stock for each two shares of common stock purchased by the investor in the
      private placement ("Contingent Warrant"). The exercise price for the
      Contingent Warrant is $2.00 per share. The Contingent Warrant must be
      exercised on or before the close of business on September 20, 2007.

(5)   On November 20, 2005, the Warrants attached to the July 1998 Notes held by
      two of the Note holders for a total of 81,819 shares of Common Stock
      expired. (See note 7(b).)

(6)   In October 2005, Mr. Amir exercised his warrant for 45,455 shares of
      Daleco Common Stock with an exercise price of $.55 per share. (see Note
      7(b)).



      (c)   Stock Based Compensation

      In March 2004, the shareholders of the Company approved the Independent
Director's Incentive Stock Option Plan. Two Directors, Messrs Pryor and Lord
Gilbert qualified for option awards under the plan during fiscal 2004. Each of
these Directors received an option for 200,000 common shares at an exercise
price equal to $0.85 per share. These option rights vest over a three-year
period (but only while the recipient is a Director), 100,000 shares in the first
year, and 50,000 shares in each of years two and three. The options expire five
(5) years after issuance.

      Of the 2,350,000 options outstanding, current officers, directors and
employees of the Company hold 2,200,000. The exercise price of the options held
by insiders range from $0.53 per share to $1.08 per share. On September 18,
2005, 500,000 options awarded on September 18, 2000 expired. These options had
an exercise price of $.25.


                                      -24-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

      All stock options issued to employees have an exercise price not less than
the fair value of the Company's common stock on the date of grant, and in
accounting for such options utilizing the intrinsic value method there is no
related compensation expense recorded in the Company's financial statements. Had
the Company determined compensation cost based on the fair value of the stock
option on their dates of grant pursuant to SFAS 123, the Company's net income
(loss) and earnings (loss) per share would have changed to the pro forma amounts
presented below:

                                                           2006          2005
                                                           ----          ----
Net income (loss) (as reported)                         $(427,502)    $(547,925)

Stock based employee
  compensation expense determined
  under fair value based method for
  all awards                                             (100,605)      (70,089)

Pro forma net income (loss)                              (528,107)    $(618,014)
                                                        ---------     =========

Basic and diluted loss per common share
      As reported                                       $   (0.01)    $   (0.02)
      Pro forma                                         $   (0.01)    $   (0.02)


      The fair value of the options granted during the quarter ending March 31,
2006, was estimated using the Black-Scholes option-pricing model with the
following assumptions: risk free interest rate between 3.14 and 5.81%, expected
life of five (5) years; and, expected volatility between 131% and 157%.

The following table summarizes information about stock options outstanding as of
March 31, 2006:

                           Weighted     Weighted                  Weighted
                           Average      Average                   Average
              Options      Exercise     Remaining    Options      Exercise
Exercise      Outstanding  Price        Life (Years) Exercisable  Price
price
------------------------------------------------------------------------------
 $0.43-$1.08   3,500,000      $0.70       2.81yrs     2,350,000     $0.81


                                      -25-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

      (d)   Warrants

(1)    Sumitomo Warrants

On September 15, 2004, the Company entered into the First Amendment to Master
Distribution and Marketing Agreement (See Exhibit 10.36 to the Company's Annual
Report) ("First Amendment"). Under the terms of the First Amendment, Sumitomo's
2,240,000 warrants were cancelled.

(2)   July 1998 Note Warrants

On July 21, 1998, a total of 263,638 warrants expiring on November 20, 2003,
were granted to four persons who lent the Company a total of $145,000 in July
1998. (See Note 7b). The expiration date for these warrants was extended from
November 20, 2003 to November 20, 2005 in Fiscal Year 2000. In October 2005, Mr.
Amir exercised his warrants. The warrants held by two holders of the July 1998
Notes totaling 81,819 expired on November 20, 2005. (See Note 7(b)).

(3)   Sonata Warrants

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 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)). As
additional consideration for the acquisition of the Heller Loan, the expiration
date for the Sonata and Standard Warrants was extended until December 31, 2007.
250,000 warrants were also issued to Sonata Investment Company as additional
consideration for acquisition of the Heller Loan at an exercise price of $.906
per share with an expiration date of December 31, 2007 (See Note 10(a)).

 On September 1, 2004, the Company granted to Herbert L. Lucas warrants for
20,000 shares of common stock with an exercise price of $.44 per share. The
warrants expire on August 31, 2006. The Warrants were given in consideration for
Mr. Lucas having made a loan of $40,000 to the Company's wholly owned
subsidiary, CA Properties, Inc. (See Note 7(d) above.)


                                      -26-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

(4)   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.

(5)   Smith Warrants

On September 1, 2004, the Company granted Mr. William Smith, a recognized expert
in sewage treatment facilities and the processing of municipal waste, warrants
for 250,000 shares of common stock at an exercise price of $.65 per share. The
warrants granted to Mr. Smith expire on August 31, 2007. They were issued to Mr.
Smith in consideration of his assistance and expertise in the marketing and
development of the Company's potential product ReNuGen(trademark applied for)
used in sewage waste facilities.

(6)   Conley & Anthony Warrants

On February 27, 2003, warrants for 300,000 shares of Stock at a price of $0.13
per share were granted to Mr. Robert Conley and Mr. Bob Anthony in consideration
of their consultation and individual expertise in regard to product development
and application market identification with regard to the Company's potential
Sierra Kaolin(TM) and Zeolite products respectively.

(7)   Private Placement Warrants.

On September 21, 2005, the Registrant closed a private placement offering for
6,500,000 shares of the Registrant's Common Stock pursuant to an Exemption under
Section 506 of Regulation D. The Offering was for Units consisting of 20,000
shares of Common Stock at $.25 per share plus warrants for the Registrant's
Common Stock. The Investors are entitled to Warrants for one share of Common
Stock for each two (2) shares of Common Stock purchased pursuant to the Offering
in the first year after the purchase of the Common Stock ("Participation
Warrants") and Contingent Warrants for one share of Common Stock for each two
(2) shares of Common Stock purchased pursuant to the Offering in the second year
after the purchase of the Common Stock and the exercise of the Participation
Warrants ("Contingent Warrants"). The price per Unit was $5,000 with a minimum
purchase of five (5) Units ($25,000).

The shares issued under the Offering and upon the exercise of the Warrants will
be unregistered, will bear a restrictive legend and are subject to certain
piggyback registration rights and demand registration rights.


                                      -27-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

The proceeds of the Offering, $1,625,000 will be used to satisfy the
Registrant's obligation to retire its Class A Preferred Stock (See "Kane
Litigation", footnote 14(a) to the Registrant's Annual Report of Form 10-KSB for
the period ending September 30, 2005 and footnote 14(a) to the Company's
quarterly report for the period ending June 30, 2005) and for general working
capital.

      (e)   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 that totaled 41,097,647 for
the period ended March 31, 2006 (2005 - 28,693,043). For the periods ended March
31, 2006 and 2005, the exercise of the options and warrants outstanding as at
year-end did not have a dilutive effect on the net income per share.

      (f)   Payment of Accrued Dividends

There were no cash dividend payments on either Series of Preferred Stock. A
total of 552,950 shares of common stock were issued to the holders of the 8%
Cumulative Convertible Preferred Stock (Series "B") ("CAMI Preferred") issued in
the acquisition of CAMI in satisfaction of accrued dividends during fiscal 2004.
See also Note 14(b), regarding payment of accrued dividends on the Series A
Preferred Stock held by the Kanes through September 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 Companies' tax filings show net operating losses to be applied
against future taxable income in the amount of approximately $26.7 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  Forest  Industries,
      Inc.,  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  were  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,  each of the key officers is 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).


                                      -28-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

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.
      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 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.

c.    Effective August 1, 2005, the Company entered into employment  contracts
      with  Mr.  Stephan  V.  Benediktson,  Chief  Executive  Officer  of  the
      Company,   and  Mr.  Nathan  Trynin,  Vice  Chairman  of  the  Board  of
      Directors,  copies of which are set forth on Exhibits 10.41 and 10.42 as
      filed with the SEC on Form 8-K on or about  September  15,  2005.  Under
      the terms of their employment  agreements neither party is entitled to a
      salary  unless and until the  Company  raises a minimum  of  $1,000,000,
      exclusive  of  debt.  Once  the  $1,000,000  or  more  is  raised,   Mr.
      Benediktson's  salary will be $10,000 per month and Mr.  Trynin's salary
      will be $5,000 per month.  Each of Mr.  Benediktson  and Mr.  Trynin was
      given the right to acquire  stock of the  Company at the  average of the
      bid and ask  closing  price  for the  five  trading  days  prior  to the
      effective  dates of their  contracts.  Each party  exercised that right.
      The  employment  contracts  also contain  bonus  provisions  tied to the
      performance  of the  Company's  stock.  Mr.  Benediktson  and Mr. Trynin
      entered  into Notes with the  Company  totaling  $576,000 to cover their
      purchase  of the  stock  offered  by their  Employment  Agreements.  The
      Notes are for one year and earn  interest at the prime rate charged from
      time to time by the PNC Bank,  Philadelphia,  Pennsylvania.  The Company
      holds the  stock as  collateral  for the  notes.  The stock  will not be
      released to either Mr.  Benediktson or Mr. Trynin unless and until their
      Notes are satisfied in full in accordance with their terms.


                                      -29-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

d.    On March 10, 2006,  but  effective  as of January 15, 2006,  the Company
      entered  into an  Employment  Agreement  with Richard A.  Thibault.  Mr.
      Thibault  joined the Company as Vice  President  -  Minerals.  Under the
      terms of the  Agreement,  in addition to his base salary,  Mr.  Thibault
      was granted  options for  500,000  shares at an exercise  price equal to
      the then market  price of the  Company's  common  stock.  On January 23,
      2006,  the Company  entered into an Employment  Agreement  with David L.
      Matz.  Mr. Matz joined the Company as Vice  President - Oil & Gas. Under
      the terms of the  Agreement,  in addition to his base  salary,  Mr. Matz
      was granted  options for  250,000  shares at an exercise  price equal to
      the then market price of the Company's common stock.

14.   Litigation Settlement and Pending Litigation

a.    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  interest on the Series A Preferred
      Stock,  it did not  redeem  the  shares.  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
      or 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 had until August 1,
      2001, to redeem the remaining 8,000 shares for $400,000 plus accrued
      interest through the date of settlement at a rate of 10% per annum. The
      Kanes granted 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, 2003. The Company satisfied its obligation to the
      Kanes by payment of $643,819.32 in August 2005. As a result of the
      satisfaction of this judgment, the 8,000 shares of Series A Preferred
      Stock held by the Kanes was returned to and cancelled.


                                      -30-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENDED MARCH 31, 2006- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

      Mr. Erlich has filed a Cross Complaint against the Company for payment of
      his obligation under his guarantee. With the satisfaction of the Kane
      Litigation, Mr. Erlich's Cross Complaint was dismissed.

b.    Erlich Litigation:
      On February 5, 2004, Mr. Erlich commenced an action in the Superior Court
      of the State of California Beverly Hills District, Case No: SC080498
      against the Company demanding payment of an unsecured loan to the Company
      in the principal amount of $98, 048. The loan has no maturity date. On
      March 24, 2004, Mr. Erlich withdrew the Complaint without prejudice, but
      reserved the right to re-file his complaint should the loan not be
      satisfied by January 1, 2005. The Company believes the complaint to be
      without merit. However, should the funds be available to satisfy Mr.
      Erlich's loan as well as other obligations of the Company, the Company
      intends to satisfy all of its indebtedness in full.

15.   Acquisitions/Mergers

      During the quarter ended March 31, 2006, the Company acquired the
interests of certain minority working interest holders in the oil and gas
properties which it operates. The acquisition of these interests are recorded on
the Company's book at cost.

16.   Accounting Standards

      In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 requires that an
issuer classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances). The financial instruments affected include
mandatory redeemable stock, certain financial instruments that require or may
require the issuer to buy back some of its shares in exchange for cash or other
assets, and certain obligations that can be settled with shares of stock.

      Effective July 1, 2003, Daleco adopted the Statement as required, for its
mandatory redeemable Series A, 10% Cumulative Convertible Preferred Stock,
stated value $50.00 and par value $.01, in line with the satisfaction of its
$400,000 obligation to Mr. Kane, as mentioned under Note 14(b). As a result,
Long-term Debt (see Note 10 (c) above) included the preferred securities which
had been previously included as part of the Shareholders' Equity.

      In accordance with the requirements of SFAS No. 150, prior period amounts
have not been reclassified to be in conformity with the current presentation.


                                      -31-
<PAGE>


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,
      futures 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 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.


      During the quarter ended March 31, 2006, the Company's operating revenues
      were derived from its oil and natural gas production operations. These
      types of operations are influenced by a variety of factors which are
      beyond the control of management, such as 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 demand and pricing, both domestically and
      internationally,. The segment's net operating cash flows reached a level
      of $312,743 during the quarter ended March 31, 2006. This represents a
      gain of roughly 48% ($101,633) from the prior year's period. This gain is
      the result of the continuation of favorable oil and gas prices, sustained
      levels of production and controlled cost levels.


                                      -32-
<PAGE>


      During the quarter, efforts continued to complete the analytical phase of
      the Sierra Kaolin(TM) deposit coring program. The completion of this work
      has lagged expectations primarily as a result of the high demand for
      analytical lab services within the mineral sector. However, the results
      obtained to date are consistent with historical data available on the
      property. As previously stated, the Company believes that the information
      to be obtained from this analytical effort is a critical component to its
      plans to commercialize this resource. The Company continues to market its
      Calcium Carbonate for use as ground cover under the trade name, Oro Grande
      Gold(TM) (trademark applied for), and has continued its efforts to test
      -market its crushed stone for road base and for use in coal fired power
      plants. The results of these efforts have been mixed as a result of demand
      and the availability of competing products.

      The Company continues to pilot market its ReNuGen (trademark applied for)
      product for use within the waste treatment industry. Efforts are now being
      made to expand the marketing efforts. Additional testing is being
      conducted by third parties on the efficacy of utilizing the Company's
      zeolite in a variety of agricultural, industrial and environmental roles.

      The efforts to introduce its mineral products into the established and or
      emerging markets all require lengthy negotiations and testing. The Company
      believes that these efforts are necessary to break the traditional market
      barriers and to foster the acceptance of its new and/or innovative
      products such as its ReNuGen (trademark applied for), its Sierra
      Kaolin(TM) and its Oro Grande Gold (trademark applied for) stone products.

      For the three-month period ended March 31, 2006, total combined operating
      revenues increased by 29% ($130,690) while combined direct operating
      expenses increased by 74% ($15,322) as compared with the same quarter last
      year. The increase in direct operating expense is associated primarily
      with increased levels of well repair activity in the Company's oil and
      natural gas segment in response to the higher product prices within the
      energy sector. . Net interest expense for the quarter continued to decline
      as a result of the Company's ongoing efforts to reduce debt levels. The
      current quarter's interest expense of $23,593 represents a decrease of
      roughly 86% from the prior fiscal year's second quarter. The Company's
      general and administrative expenses increased by approximately 8% to a
      level of $332,925 during the quarter ended March 31, 2006. This increase
      is directly attributable to staff additions and increased activity within
      the Company's operating segments. For the period, the Company recorded a
      loss of $427,502 as compared to a loss of $511,295 for the prior fiscal
      year's second quarter. Roughly 90% of the current quarter's loss is
      directly attributable to non-cash charges recorded by the Company during
      the period.


                                      -33-
<PAGE>


      Liquidity and Capital Resources.

            The Company's capital requirements have been and will continue to be
      significant. Historically, the Company's cash requirements have exceeded
      cash flow from operations. With the increase in the price for oil and gas,
      the Company's cash requirements have substantially improved. However, as
      an exploration and production company, the Company will always be in need
      of and in search of additional capital for exploitation of existing assets
      and acquisition of new assets.

            The Company has historically satisfied its working capital
      requirements from its oil and gas production, limited sales of its Calcium
      Carbonate and the issuance of equity and debt securities. The Company has
      borrowed to finance acquisitions or the refinancing of existing debt.
      Other than loans from officers and Directors, the Company has refrained
      from incurring third party debt. Although for a period of three years the
      Company had an equity line of credit available to it, the Company never
      borrowed under this line and allowed it to expire in November 2005.

            In September 2005, the Company completed an offering of units
      consisting of one share of stock at $.25 per share and warrants for two
      shares of stock, one at $1.00 per share and the second at $2.00 a share.
      This offering raised the Company approximately $1,600, 000 and resulted in
      6,500,000 shares being issued. As a result of this offering and the
      increased prices received from the sale of the Company's oil and gas, the
      Company has been able to satisfy and reduce outstanding debt and have
      sufficient revenues to meet the Company's working capital requirements.

            Since the Company is always looking to acquire and expand its oil
      and gas activities, should a favorable acquisition become available, the
      Company will have to obtain either equity or debt financing to cover that
      acquisition. Likewise, the Company might be required to provide financing
      for the development of its Sierra Kaolin(TM) deposits in accordance its
      Operating Agreement with Tecumseh Professional Associates, Inc.


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 SOA, 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.


                                      -34-
<PAGE>


      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 statements were made, not misleading with respect
to the period covered by the annual report. The certification also requires 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 requires that a "Disclosure Committee" be established. This
committee considers the materiality of information and determines disclosure
obligations on a timely basis. This committee is the Company's "watchman" for
public disclosures. The Company has designated the Board of Directors as the
Committee. The Company has eight employees, and four 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 the Board of Directors.

      Because the drafting and approval of all the Company's reports is a
collective process, the provisions of the SOA to establish an independent
Disclosure Committee, a Disclosure Controls Monitor, to 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 continue to 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 is not appropriate 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.


                                      -35-
<PAGE>


      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
utilizing available knowledge of its business and the environment in which it
operates, but because of the factors listed above, as well as other
environmental 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.


                                      -36-
<PAGE>



PART II.    OTHER INFORMATION
            -----------------

Item 1.     Legal Proceedings

            None.
            -----

Item 2.     Change in Securities.

      Pursuant to the Second Amended Loan Agreement dated December 31, 2003
      between Sonata Investment Company, Ltd. ("Sonata"), Tri-Coastal Energy,
      L.P. and Daleco, Sonata, or its nominee was given 250,000 shares of Daleco
      common stock. The average of the closing bid and asking price on December
      30, 2003 for Daleco common stock was $.906. The Company recorded a cost of
      $226,500 for the issuance of these shares. The Company also issued to
      Sonata, or its nominees, warrants for 250,000 shares of Daleco common
      stock at an exercise price of $.906 per share. These warrants have an
      expiration date of December 31, 2007. Daleco also extended the expiration
      date for other warrants held by Sonata with exercise prices ranging from
      $.55 to $1.05 until December 31, 2007. The Company recorded a cost of
      $48,546 resulting from the extension of these warrants.

            In October 2003, Terra Silex Holdings, Inc., exercised its rights
      under Paragraph 6.3 of the Terra Silex Stock Acquisition Agreement, dated
      September 11, 2001 ("Terra Silex Agreement"). Paragraph 6.3, of the Terra
      Silex Agreement gives Terra Silex the right to acquire additional shares
      of Daleco common stock if Daleco were to sell more than 500,000 shares in
      one block. The conversion of the Cornell Capital debenture was the event
      that triggered Terra Silex's right under Paragraph 6.3 Terra Silex
      purchased 220,169 shares at a price of $.117 per share.

            Effective September 15, 2004, the Company entered into the First
      Amendment to the Master Distribution and Marketing Agreement ("First
      Amendment") with Sumitomo Corporation of America ("Sumitomo"). (See the
      Company's Form 8-K dated September 15, 2004). Under the First Amendment,
      the warrants to purchase up to 1,700,000 shares of the Company's common
      stock granted in the Company's Stock Purchase Agreement with Sumitomo
      dated as of November 16, 2001, and the warrants to purchase up to 540,000
      shares of the Company's common stock granted in the Company's Master
      Distribution and Marketing Agreement with Sumitomo dated as of November
      16, 2001, were cancelled.

Item 3      Heller Debt.


                                      -37-
<PAGE>


            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 September 30, 2003 and 2002, was $6,708,474 and $6,967,975,
      respectively. Interest on the borrowings was at prime plus 2%. Principal
      was paid out of 85% of the net cash flow from the properties. Additional
      interest was 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, due to the pledged properties' failure to generate the
      required interest payments. This failure was solely attributable to the
      low worldwide prices for oil. As a result, the full amount of the Heller
      Loan had been reclassified as current debt. With the recovery of oil
      prices, the Heller Loan had come back into compliance and on October 15,
      2003, Heller declared the Heller Loan to be in full compliance. The
      obligations to Heller were non-recourse to the Company and payable solely
      out of the oil and properties pledged to Heller as collateral. By
      agreement between Heller and Tri-Coastal, the Termination Date of the
      Heller Loan was extended from October 15, 2003 until January 31, 2004. In
      the Company's third fiscal quarter (March through June 2003) Heller
      advised Tri-Coastal that it was desirous of liquidating Tri-Coastal's oil
      and gas properties in full satisfaction of the Heller Loan. Heller had
      previously wanted Tri-Coastal to sell its oil and gas properties; however,
      a purchase price acceptable to Heller could not be obtained.

            At Heller's request, Tri-Coastal engaged Madison Energy Advisors to
      assist in marketing Tri-Coastal's properties.

            Through Tri-Coastal's efforts, Sonata Investment Company, Ltd.,
      ("Sonata") an affiliate of Standard Energy Company of Columbus, Ohio,
      became aware of Heller's desire to either sell the Tri-Coastal properties
      or sell the Heller Loan.

            Sonata is an independent, privately held company that is not
      affiliated with the Company in any fashion. The Company has done other
      financings (see Note 10(b) above) with Sonata previously, and the Company
      has consulted for Sonata and/or its affiliated entities regarding oil and
      gas projects, acquisitions, exploration and development.


            Sonata and Heller arrived at an agreement by which Sonata would
      purchase the Heller Loan for $605,000. Sonata simultaneously entered into
      an agreement with Tri-Coastal and the Company whereby Sonata would advance
      to Tri-Coastal/Daleco an additional $50,000 for working capital and reduce
      the amount of the Heller Loan to $655,000 ("Sonata Loan"). In
      consideration of Sonata's reduction of the Heller Loan from $5,154,783 to
      $655,000, Daleco agreed to:


                                      -38-
<PAGE>


            (1) issue to Sonata or its nominee 250,000 shares of Daleco Common
      Stock;

            (2) grant Sonata or its nominee warrants for 250,000 shares of
      Daleco Common Stock at $.906 per share with an expiration date of December
      31, 2007; and

            (3) extend the expiration dates for the warrants currently held by
      Sonata until December 31, 2007.

            On December 31, 2003, Sonata acquired the Heller Loan from Heller
      Financial, Inc. for $605,000. Tri-Coastal made a principal reduction
      payment of $23, 298 to Sonata on December 31,2003. This payment was
      consistent with both the provisions of the Heller Loan and the Sonata Loan
      and was made in the ordinary course.

            Tri-Coastal, Sonata and Daleco entered into a Second Amended Loan
      Agreement amending the Heller Loan Agreement dated August 22, 1997
      ("Heller Loan Agreement") and the First Amended Loan Agreement dated March
      27, 1998 ("First Amended Loan Agreement") (hereinafter the Heller Loan
      Agreement, First Amended Loan Agreement and the Seconded Amended Loan
      Agreement are collectively referred to as the "Sonata Loan Agreement").

            The Sonata Loan Agreement provides that the Heller Loan: (i) was
      reduced to a three (3) year loan in the principal amount of $655,000 plus
      interest at the prime rates, to move, as established by the National City
      Bank, Columbus, Ohio plus three percent ("Sonata Loan"); (ii) will be
      repaid out of 85% of the net revenues from Tri-Coastal's oil and gas
      properties, but in no event will the amount of interest and principal paid
      in any six month period be less than one-sixth of the original face amount
      of the Sonata Loan, less any prepayments, plus all accrued and unpaid
      interest with the full amount of the Sonata Loan plus all accrued and
      unpaid interest paid in full on or before December 30, 2006; (iii) 66
      2/3rds of the net cash flow from production from Tri-Coastal's assets
      after satisfaction of the Sonata Loan; (iv) the issuance of stock and
      warrants as set forth above; and (v) Daleco's guaranty of the Sonata Loan.

            Under the terms of the Sonata Loan Agreement, the Sonata Loan will
      become a general obligation of the Company.

            As a result of the purchase of the Heller Loan and the entry into
      the Sonata Loan Agreement, the Company realized:

            (1)   Reduction of the Heller Loan from $5,154,783 to $655,000;

            (2) Reduction in accrued interest payable of $1,572,000;


                                      -39-
<PAGE>


            (3) Transaction costs recorded as Debt Placement Costs on the
      Balance Sheet of $285,046 consisting of:

                  (a)   $226,500 for issuance of the 250,000 shares of common
                        stock;

                  (b)   $48,546 for the extension of warrants held by Sonata;
                        and

                  (c)   $10,000 in legal costs associated with the transaction.



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

                  On March 16, 2006, the Company held its Annual Meeting of
Shareholders. At the Annual Meeting, the following matters were voted upon.

I. ELECTION OF DIRECTORS for a term expiring in 2007:

--------------------------------------------------------------------------------
Name of Nominee                    For              Against          Abstain
--------------------------------------------------------------------------------
Dov Amir                       29,747,109              0            1,922,804
--------------------------------------------------------------------------------
Stephan V. Benediktson         29,324,373              0            2,372,540
--------------------------------------------------------------------------------
Nathan K. Trynin               29,324,373              0            2,372,540
--------------------------------------------------------------------------------
Lord Gilbert [John]            27,649,353              0            4,047,560
--------------------------------------------------------------------------------
William Pipkin                 29,109,572              0            2,587,341
--------------------------------------------------------------------------------
Charles T. Maxwell             30,016,853              0            1,680,060
--------------------------------------------------------------------------------


                                      -40-
<PAGE>


II.   Proposal to RATIFY THE SELECTION OF Vasquez & Company, CPA, as the
      Company's Independent Registered Public Accountants for Fiscal Year 2006.


               FOR                  AGAINST                 ABSTAIN

            31,649,286               46,659                   968

III.  Proposal to APPROVE THE INCREASE in the authorized number of shares of
      Common Stock from 50,000,000 shares to 100,000,000 shares.


               FOR                  AGAINST                 ABSTAIN

            31,649,286              3,303,689               592,354

IV.   Proposal to RATIFY STOCK AWARD of 300,000 shares of Common Stock to the
      members of the Special Committee of the Board of Directors.

               FOR                  AGAINST                 ABSTAIN

            10,478,165              6,373,630               414,012


Item 5            Other Information:


                  The Company's common stock was trading on the Over the Counter
Market, Bulletin Board ("OTCBB"). On December 12, 2004, the Company's securities
were assigned to trade on the "Pink Sheets Market." This change was the result
of the Company's filing its re-audited financial statements for the fiscal year
ended September 30, 2003, late. The refiling of the Company's 2003 audited
statements was necessitated by the Company's prior auditor's not being qualified
under the PCAOB (as required by the Sarbanes-Oxley Act of 2002) at the time of
the issuance of the Company's financial statements in January 2004. (See the
Company's Form 8-K's dated September 14, 2004, and December 2, 2004.) The
Company has subsequently filed all required financial statements and has taken
and continues to take steps to return its securities to the OTCBB market. The
Company has never received official written notice from any party as to the
formal removal of its securities from the OTCBB and only learned of this move
from securities traders.


                                      -41-
<PAGE>


ITEM 6      Exhibits and Reports on Form 8-K

            The Registrant incorporates by reference the following reports on
Form 8-K:

            1. Form 8-K dated March 13, 2006 announcing the appointment of
Richard A. Thibault as Vice President of the Company. A copy of Mr. Thibault's
Employment Contract is attached as Exhibit 10.44 to the Registrant's Exhibit
List.

            The Registrant incorporates by reference its Exhibit List as
attached to its Form 10-KSB dated January 13, 2006.


                                      -42-
<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:  May 19, 2006          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:  May 19, 2006                            /s/ Gary J. Novinskie
                                          ------------------------------------
                                          Gary J. Novinskie
                                          President and Chief Financial Officer


Date: May 11, 2006                             /s/ Stephan V. Benediktson
                                          --------------------------------------
                                          Stephan V. Benediktson
                                          Chief Executive Officer


                                      -43-
<PAGE>


                                  CERTIFICATION


      I, Gary J. Novinskie, certify that:

      1. I have reviewed this quarterly report on Form 10-QSB of Daleco
Resources Corporation for the quarter ended March 31, 2006.

      2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

            (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

            (b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

            (c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

            (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weakness in internal controls; and

            (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and


                                      -44-
<PAGE>


      6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  May 19, 2006                             /s/ Gary J. Novinskie
                                          ------------------------------------
                                          Gary J. Novinskie
                                          President and Chief Financial Officer


                                      -45-
<PAGE>


                                  CERTIFICATION


      I, Stephan V. Benediktson, certify that:

      1. I have reviewed this quarterly report on Form 10-QSB of Daleco
Resources Corporation for the quarter ended March 31, 2006.

      2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

            (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

            (b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

            (c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

            (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weakness in internal controls; and

            (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and


                                      -46-
<PAGE>


      6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  May 11, 2006                             /s/ Stephan V. Benediktson
                                          ------------------------------------
                                          Stephan V. Benediktson
                                          Chief Executive Officer


                                      -47-
<PAGE>


In connection with the Quarterly Report of Daleco Resources Corporation (the
"Company") on Form 10-QSB for the period ended March 31, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Stephan
V. Benediktson, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:

      (1)   The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      (2)   The information contained in the Report fairly presents, in all
            material respects, the financial condition and result of operations
            of the Company.


                                                /s/ Stephan V. Benediktson
                                          ------------------------------------
                                          Stephan V. Benediktson
                                          Chief Executive Officer
                                          May 11, 2006


                                      -48-
<PAGE>


In connection with the Quarterly Report of Daleco Resources Corporation (the
"Company") on Form 10-QSB for the period ended March 31, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Gary J.
Novinskie, President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:

      (3)   The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      (4)   The information contained in the Report fairly presents, in all
            material respects, the financial condition and result of operations
            of the Company.


                                                /s/ Gary J. Novinskie
                                          ------------------------------------
                                          Gary J. Novinskie
                                          President and Chief Financial Officer
                                          May 19, 2006


                                      -49-