<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  FIRST AMENDED
                                   FORM 10-QSB

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

                For the quarterly period ended December 31, 2003
                                               -----------------

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

For the transition period from __________________ to ______________

Commission File Number 0-12214

                          DALECO RESOURCES CORPORATION
  -----------------------------------------------------------------------------
              Name of small business issue as specified in Charter
<TABLE>
<CAPTION>

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

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

                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
December 31, 2003: 28,307,975
Number of shares outstanding of the issuer's Series A preferred stock as of
December 31, 2003: 8,000
Number of shares outstanding of the issuer's Series B preferred stock as of
December 31, 2003: 185,000


<PAGE>


                                      INDEX

                                                                         PAGE
PART I   FINANCIAL INFORMATION

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

ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS.....................    27

ITEM 3        CONTROLS AND PROCEDURES.................................    28

PART II       OTHER INFORMATION.......................................    29

ITEM 2        CHANGE IN SECURITIES....................................    29

ITEM 3        HELLER DEBT.............................................    30

ITEM 4        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....    32

ITEM 6        Exhibits and Reports on Form 8-K........................    33

SIGNATURES    ........................................................    34


                                      -2-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 -- PREPARED BY
MANAGEMENT (UNAUDITED) AND SEPTEMBER 30, 2003 (AUDITED))
================================================================================
<TABLE>
<CAPTION>

                                                                  December 31, 2003            September 30, 2003
                                                                     (unaudited)                   (audited)
                                                                  -----------------            ------------------
<S>                                                               <C>                          <C>
ASSETS
Current Assets
         Cash Accounts                                              $    232,266                  $    428,988
         C/Ds                                                            171,994                       136,000
         Account receivables                                             521,126                       423,935
         Jib Receivables                                                    --                            --
         Prepaid Mineral Royalties S/T (note 5c)                         300,297                       270,297
         Other Current Assets                                              4,569                         4,569
                                                                    ------------                  ------------
                               Total Current Assets                 $  1,230,252                  $  1,263,789
                                                                    ------------                  ------------
Other Assets
         Prepaid Mineral Royalties  L/T (mote 5c)                   $    265,190                  $    265,190
         Goodwill                                                        813,357                       813,357
         Accumulated Amortization Goodwill                              (813,357)                     (813,357)
                  Net Goodwill                                              --                            --
         Debt Placement Costs (note 10)                                  869,861                       584,815
         Accumulated Amortization                                       (584,815)                     (584,815)
                  Net Debt Placement Costs                               285,046                          --
         Equity Placement Costs                                             --                            --
         Accumulated Amortization Equity Costs                              --                            --
                  Net Equity Placement                                      --                            --
         Other Assets                                                       --                            --
                               Total Other Assets                   $    550,236                  $    265,190
                                                                    ============                  ============
Fixed Assets
         Oil and Gas Properties (note 3)                            $ 12,607,950                  $ 12,607,950
         Accumulated DD&A                                             (7,457,950)                   (7,307,950)
                  Net Oil and Gas Property                             5,150,000                     5,300,000
         Mineral Properties (note 5)                                  12,609,100                    12,609,100
         Accumulated DD&A                                               (100,000)                     (100,000)
                  Net Mineral Property                                12,509,100                    12,509,100
         Timber Properties (note 4)                                    1,028,342                     1,028,342
         Accumulated DD&A                                             (1,028,342)                   (1,028,342)
                  Net Timber Property                                       --                            --
         Technology/Patent Rights (note 6)                             7,767,000                     7,767,000
         Accumulated DD&A                                             (2,357,718)                   (2,166,123)
                  Net Tech./Patent Rights                              5,409,282                     5,600,877
         Property, Equipment, Furniture & Fixtures                       514,749                       514,749
         Accum. Depr (P, E, P &  P)                                     (496,844)                     (493,998)
                  Net (P, E, P & P)                                       17,905                        20,751
         Leasehold Improvements                                             --                            --
         Accu. Amort. (Lease  Improvements)                                 --                            --
                  Net Lease Improvements                                    --                            --
                                                                    ------------                  ------------
                  a) Total Fixed Assets                             $ 23,086,287                  $ 23,430,728
                                                                    ============                  ============
                  b) Total Assets                                   $ 24,866,774                  $ 24,959,707
                                                                    ============                  ============

</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                      -3-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 -- PREPARED BY MANAGEMENT
(UNAUDITED) AND SEPTEMBER 30, 2003 (AUDITED)
================================================================================
<TABLE>
<CAPTION>

                                                                  December 31, 2003            September 30, 2003
                                                                     (unaudited)                   (audited)
                                                                  -----------------            ------------------
<S>                                                               <C>                          <C>

LIABILITIES
Current Liabilities
         Trade A/P                                                   $  1,816,658                 $    970,347
         Notes Payable (note 7)                                           142,542                      142,543
         Note Due related Pty (note 8)                                    736,410                      733,410
         HFI Financing (note 10a)                                            --                      5,154,783
         Loans--1st Regional (note 10d)                                   100,000                      100,000
         CAMI Notes                                                       514,881                      514,881
         Sonata Financing (note 10)                                       195,472                         --
         Accrued Interest Expense (notes 10a and 10b)                     259,756                    1,786,871
         Accrued Dividend Expense (notes 11d and 16)                    1,482,360                    1,248,043
         Accrued Expense Reimbursements                                    65,480                       60,187
         Accrued Salary Expense                                           440,913                      364,351
                                                                                                  ------------
                  Total Current Liabilities                          $  5,754,471                 $ 11,075,416
                                                                     ------------                 ------------

Long Term Debt (note 10)                                             $    436,230                       $-----

         Total Long Term Debt                                        $    436,230                       $-----
                                                                     ------------                 ------------
                  Total Liabilities                                  $  6,190,701                 $ 11,075,416
                                                                     ------------                 ------------
EQUITY
         Beginning Retained Earnings                                 $(25,103,748)                $(24,066,365)
         Current Period Income/(loss)                                   5,124,523                   (1,027,383)
         Dividends Paid (Cash & Stock)                                   (691,188)                     (10,000)
         Add. Paid in Capital                                          39,061,476                   38,722,010
         Preferred Stock (note 11)                                          1,930                        3,180
         Common Stock (note 11)                                           283,080                      262,849

                               Total Equity                          $ 18,676,073                 $ 13,884,291
                                                                     ------------                 ------------
                  Total Liabilities and Equity                       $ 24,866,774                 $ 24,959,707
                                                                     ============                 ============

</TABLE>





                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -4-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 -- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>

                                                                                 2003               2002
                                                                             -----------        -----------
Revenue
<S>                                                                          <C>                <C>
         O&G Sales                                                           $   343,660        $   344,457
         N P I Receipts                                                             --                 --
         Royalty Receipts                                                          8,016              5,308
         Timber Sales                                                               --                 --
         Mineral Sales                                                            18,481               --
                           Total Operating Income                            $   370,158        $   349,765
                                                                             -----------        -----------
         Interest Income                                                            --                 --
         Well Management                                                          16,505             17,111
         Ptr. Management                                                            --                 --
         Other Income                                                                863               --
                           Total Other Income                                $    17,368        $    17,111
                                                                             -----------        -----------
         Total Income                                                        $   387,526        $   366,876
                                                                             ===========        ===========
Expenses
         LOE - Oil and Gas $213,843                                          $   158,223
         LOE--Timber                                                               3,300              5,500
         LOE--Minerals                                                            59,484             35,000
         N P I Exp                                                                  --                 --
         Prod Tax                                                                 25,139             27,538
         DD&A (Fixed Assets)                                                     344,441            321,256
         Third Party Distributions                                                 8,921              4,029
                           Total Operational Expense                         $   655,130        $   551,546
                                                                             -----------        -----------

         Interest Expense                                                    $   141,688        $   180,350
         General and Administrative Expenses                                 $   174,961        $    93,682
         Legal and Professional Fees                                              75,715            120,021
         Financial Advisor Fees                                                     --                 --
         Shareholder Information                                                   3,197              1,841
         Amortization of Debt Costs                                                 --                 --
         Amortization of Goodwill                                                   --               $-----
                           Total Expenses                                    $ 1,050,690        $   947,440
                                                                             -----------        -----------
         Net Income (loss) Before  Extraordinary Item (see Note 10(a))       $  (663,163)       $  (580,564)
                                                                             ===========        ===========
         Basic/Fully Diluted Income (Loss)/Share                             ($      .02)       ($      .03)

         Extraordinary Item, Gain On Debt Forgiveness (see Note 10(a))       $ 5,787,687
         Basic /Fully Diluted Net Effect Gain (Loss)/Share                     $.20/$.15

         Net Income (Loss) After Extraordinary Item (see Note 10(a))         $ 5,124,523        $  (580,564)
                                                                             ===========        ===========
         Basic/Fully Diluted Income (Loss)/Share (see Note 10(a))            $  .18/$.13        ($      .03)

</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -5-
<PAGE>


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


                                                  2003                2002
                                                  ----                ----
Deficit - Beginning of Period                $(25,103,748)       $(22,421,362)
Net loss for the period                          5,124,523           (580,564)
Dividends on Preferred Stock                     (691,188)             (-----)
Deficit - End of Period                      $(20,670,413)        $(23,086,926
                                             =============        ============






























                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -6-
<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>

                                                                            2003                    2002
                                                                            ----                    ----
<S>                                                                    <C>                      <C>
Operating Activities
Net Income/( loss) for the period                                      $ 5,124,523              $  (580,564)
Items not affecting working capital
         Change in DD & A for period                                   $   344,441              $   321,256
         Debt Amortization -                                                     0                        0
         Amortization of Good Will
         Extraordinary Item                                             (5,787,687)                       0
                           Sub Total                                   $(5,443,246)             $   321,256
                                                                       -----------              -----------
Items affecting Working Capital:
         (Increase) / Decrease in other assets                         $  (285,046)             $         0
         (Increase) / Decrease in Pre-paid Royalties                       (30,000)                       0
         (Increase) / Decrease in accounts receivable                      (97,191)                 237,603
         Increase / (Decrease) in Trade payables                           846,311                 (212,637)
         Increase / (Decrease) in other Accrued Expenses                    81,855                   61,477
         Gain/(loss) on Sale of Properties                                       0                        0
                           Sub Total                                   $   515,929              $    86,443
                                                                       -----------              -----------

Cash provided (used) for operating activities                          $   197,206              $  (172,865)
                                                                       -----------              -----------

Investing Activities
         (Increase)/decrease in Investment in Subsidiaries             $         0              $         0
         Leasing, Acquisition and Well Costs Incurred                  $         0              $         0

Cash Provided from/(used for) Investing Activities                     $         0              $         0

Financing Activities
          / (decrease) Other Notes due                                           0                        0
         Increase / (decrease) Sonata Notes due                            631,702                        0
         Increase / (decrease) Accrued Interest                         (1,527,115)                  (2,854)
         Increase / (decrease) Accrued Dividends                           234,317                   85,000
         Dividends Paid                                                          0                        0
         Proceeds of Equity Issuance                                       260,162                   95,000
         Proceeds of LT Debt                                                  --                     40,000
Cash provided from/(used for) financing activities                     $  (357,934)             $   102,146
                                                                       -----------              -----------
Net Increase/(decrease) in cash for period                             $  (160,728)             $   (70,719)

Cash and Cash Equivalents - Beginning of Period                        $   564,988              $   625,682
                                                                       -----------              -----------
Cash and Cash Equivalents - End of Period                              $   404,260              $   554,963
                                                                       ===========              ===========
         Change in Cash FY 1st Qtr                                     $  (160,728)             $   (70,719)
                                                                       ===========              ===========

</TABLE>


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                      -7-
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
1.       CONTINUED OPERATIONS

         The financial statements have been prepared on the basis of a going
concern, which contemplates that the Company will be able to realize assets and
discharge liabilities in the normal course of business. Accordingly, they do not
give effect to adjustments that would be necessary should the Company be
required to liquidate its assets. For the quarter ending December 31, 2003, the
Company reported a loss of $663,163, before extraordinary items and a
non-recurring quarterly income of $5,124,523 after the extraordinary gain is
accounted for (see Note 10(a)). The ability of the Company to meet its total
liabilities of $6,190,701, and to continue as a going concern is dependent upon
the availability of future funding, achieving profitable timber operations and
successful development its mineral assets. On July 24, 2002 ("Closing Date"),
the Company entered into a $10,000,000 Equity Line of Credit Agreement with
Cornell Capital Partners, L.P. ("CCP"). As part of the transaction, the Company
issued to CCP a two year convertible debenture in a face amount of $300,000. The
debenture is convertible into common stock at a price equal to the lesser of
120% of the final bid price on the Closing Date or 80% of the average lowest
three closing bid prices as reported by Bloomberg of the Company's common stock
for the five trading days immediately preceding the date of the conversion. The
equity line provides for the Company to draw down $75,000 per week over a three
year period. In accordance with the provisions of the Equity Line of Credit, the
Company filed a registration statement on Form SB-2 with the Securities and
Exchange Commission, which became effect on November 7, 2002. Commencing in
November 2002 and concluding in January 2003, CCP converted the entire Debenture
in 5,027,881 shares of common stock at an average price per share of $0.117 when
including all other fees and costs associated with the issuance of the
debentures and $0.06 if just the conversion price without including other fees
and costs.

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

         As of December 31, 2003, the Company and certain of it 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
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 FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


         b.       Basis of consolidation

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

         c.       Oil and gas properties and equipment

         The Company follows the successful efforts method of accounting for the
costs of exploration and development activities. Direct acquisition costs of
developed and undeveloped leases are capitalized. Costs of undeveloped leases on
which 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 or before
the issuance of these financial statements are charged against earnings in that
year. Costs of successful exploration wells and development wells are
capitalized. All costs of development wells and successful exploration wells are
charged to earnings on a unit-of-production basis based upon 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 operating
and production expenses.

         Effective in the first quarter of 1997, 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. 121 (SFAS 121), Accounting for the Impairment 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 121 did not have any impact on the Company's change in
method of assessing impairment of oil and gas properties and other long-lived
assets including $20,000,000 in mineral properties.

                                      -9-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


         d.       Site restoration, dismantlement and abandonment costs

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

         e.       Property and Equipment

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

         f.       Timber Rights

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

         g.       Mineral Acquisition

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

         h.       Debt Issue Costs

         Debt issue costs of $285,046 were capitalized and represent those costs
associated with Sonata Investment Company, Ltd.'s acquisition of Heller
Financial, Inc. loan and the restructuring of the Note (see Note 10).

                                      -10-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         i.       Cash and Cash Equivalents

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

         j.       Fair Value of Financial Instruments

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

3.       Oil and Gas and Equipment
<TABLE>
<CAPTION>

                                                                  2003                 2002
                                                              -----------          -----------

<S>                                                           <C>                  <C>
Proven lease acreage costs                                    $ 5,429,996          $ 5,429,996

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

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

Accumulated depletion, depreciation and amortization            7,457,950            6,432,950
                                                              -----------          -----------
                                                              $ 5,150,000          $ 6,175,000
</TABLE>


(a)      Sale of Oil and Gas Properties

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

4.       Timber Rights Acquisition

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


                                      -11-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================



         The acquisition has been accounted for by the purchase method. The
purchase price of $962,500 was determined based on the fair value of the 150,000
common shares of the Company given to acquire Sustainable. The fair value of the
net liabilities of Sustainable acquired was $65,842 resulting in consideration
of approximately $1,028,500, which has been recorded as timber rights. The
Company has fully written off its investment in Sustainable.

         The Company has maintained its concession rights since the inception of
timber operations in 1997.

5.       Mineral Properties

a.       Clean Age Minerals Incorporated. Clean Age Minerals Incorporated. In
         September 2000, the Company acquired Clean Age Minerals Incorporated
         ("CAMI") by way of merger with the Company's wholly owned subsidiary;
         Strategic Minerals, Inc. CAMI has three (3) subsidiaries, CA
         Properties, Inc., Matrix-Loc, Inc. and Lone Star Minerals, Inc.
         (collectively "CAP").

         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.



b.       Minerals and Equipment
                                                 12/31/2003      12/31/2002
         Proven undeveloped lease costs         $ 12,609,100    $ 12,609,100
         Mine development costs                         --              --
         Accumulated depletion and                  (100,000)           --
         Depreciation
                                                $ 12,509,100    $ 12,609,100
                                                ------------    ------------

                   (1). The Company has begun to amortize its mineral properties
         at a nominal amortization rate of $100,000 per year subject to higher
         adjustments per year as production increases. The Company is utilizing
         a modified unit of production basis in determining its amortization
         rates for its mineral properties.



                                      -12-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


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 2003 the Company
         conducted  mining  activities on its Kaolin  deposits in Sierra County,
         New  Mexico  for the  purpose of testing  the  minerals  and  producing
         samples for sales. The Company  commenced  production of its New Mexico
         Calcium  Carbonate  properties in Fiscal Year 2003. It anticipates  the
         commencement  of the  commercial  production of its Kaolin  deposits in
         Fiscal Year 2004, and has commenced  production of its Zeolite  deposit
         in the first quarter of Fiscal Year 2004.  The Company did make limited
         sales of its CA Series  products  in Fiscal  Year  2003  primarily  for
         testing to confirm  their  suitability  for certain  applications.  The
         Company  began the  commercial  sales of one of its CA Series  Products
         under the tradename  "ReNuGen" in the first quarter of 2004. Testing of
         the  Company's  Kaolin was  commenced  in December  2002 to confirm its
         properties  in various  applications  in the paper,  paint and  coating
         industries.  A portion of the Prepaid royalties ($265,190) attributable
         to the  Calcium  Carbonate  deposits  are not  anticipated  to be fully
         recovered in Fiscal Year 2004 and are carried as Long Term Assets.  The
         remainder of the prepaid  royalties  ($300,297)  are  anticipated to be
         fully used in Fiscal Year 2004 and are listed as Current Assets.

6.       Patents & Technology


         As part of the acquisition of Clean Age Minerals Incorporated (See Note
         5(a) above), the Company also acquired U.S. Patent No: 5387738. This
         patent, owned by Clean Age Minerals Incorporated (previously owned by
         Matrix-Loc, Inc. which was acquired by Clean Age Minerals Incorporated
         as a result of Matrix-Loc's merger with Clean Age Minerals as of March
         18, 2002), deals with a reagent and process for the remediation of
         water and contaminated soils. The Company's subsidiary 16/6, Inc.
         patent application on its I(2) Technology as denied by the United
         States Patent Office on June 13, 2003. The Company has elected, at this
         time, not to appeal the Patent Office Examiner's decision or proceed
         with the "independent build-out" of the technology in a proprietary but
         unpatented form.

7.       Notes Payable

a.       During  the  year  ended  September  30,  1995,  the  Company  received
         $1,100,000 in return for two notes payable, with the producing wells of
         the  Company  used as  collateral.  Interest  of 10% per  annum was due
         monthly. In fiscal 1996, the Company repaid $300,000 of the outstanding
         balance.  In fiscal 1997,  the remaining  $800,000 was  converted  into
         16,000 shares of 10% cumulative  preferred  stock,  at $50.00 per share
         ("Series A Preferred Stock").  The Series A Preferred Stock was subject
         to a put on August 20,  1999.  The  holders  of the Series A  Preferred
         Stock filed a lawsuit in the Los  Angeles  Superior  Court,  California
         against the Company,  as well as Mr. Amir and Mr. Erlich as guarantors.
         Mr. Amir  satisfied  his  obligation  under his guarantee and purchased
         one-half,  or 8,000  shares of the  Series A  Preferred  Stock,  of the
         16,000 shares of the Series A Preferred  Stock owned by the Kanes.  The
         Company and Mr.  Erlich  entered  into a  Stipulation  for the Entry of
         Judgment  granting the Company until August 1, 2001 in which to satisfy
         the put for the remaining 8,000 shares of Series A Preferred Stock plus
         accumulated interest.  (See Litigation Note 14). Mr. Amir converted his
         Series A Preferred  shares into 408,163 shares of Company common stock.
         A portion  of the  dividends  ($32,213)  due Mr.  Amir on the  Series A
         Preferred  Stock was paid to Mr.  Amir in the third  quarter  of fiscal
         2002. (See Note 8(a)).




                                      -13-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


b.       During  fiscal  1998,  the  Company  borrowed  $145,000  from  four (4)
         persons.  The debt was  evidenced by Notes that matured on November 21,
         1998.  The Notes  earned  interest at 2% over the prime rate charged by
         the Huntingdon  National Bank of Columbus,  Ohio,  through the maturity
         date, and 18%  thereafter.  The Note holders were also given  warrants.
         (See Note 11(b)--  Warrants)  $75,000 in principal  amount plus accrued
         interest due to Sonata Investment Company,  Ltd. ("Sonata") was paid to
         Sonata on November 30, 2001. On June 7, 2002, Mr. Lincoln converted his
         Note in the amount of  $20,000,  plus  accrued  and unpaid  interest of
         $13,528,  into 49,818 shares of common stock. The debt was converted at
         a price of $.673 per share,  which  represented  the average of the bid
         and  closing  prices for the five day period  prior to the  conversion.
         Presently,  only  two  of  the  4  Notes  comprising  $50,000,  in  the
         aggregate,  of the original $145,000 remain  outstanding.  On August 1,
         2001, the Company borrowed  $42,000 from Standard Energy Company.  This
         loan earned interest at 2% per annum.  The Standard Energy Company loan
         was  satisfied on November 30, 2001.  Since June 30, 2002,  only two of
         the original four (4) notes, each in the face amount of $25,000, remain
         outstanding.  The accrued but unpaid  interest on these two notes as of
         December 31, 2003 is $40,072.

c.       Pursuant to Paragraph 5.1 of the Agreement and Plan of Merger by and
         among Clean Age Minerals Incorporated ("CAMI") and Strategic Minerals,
         Inc. ("SMI") and the Company dated September 19, 2000, obligations of
         CAMI to certain officers, directors and third parties were to have been
         satisfied by SMI or the Company within one (1) year of the merger. The
         indebtedness totaled (including the Martin Debt as defined in Note 8(b)
         below) $514,881 and was evidenced by Notes dated September 19, 2000.
         The Notes were due and payable on or before September 18, 2001 and
         provide for interest at the rate of 8% per annum. These Notes remain
         outstanding. As of December 31, 2003, the total amount payable on these
         notes is $648,749 representing principal of $514,881and accrued but
         unpaid interest of $ 133,868.





                                      -14-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


8.       Due to (from) Related Parties

         (a)      Due to (from) Amir

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

         (1) Note dated October 1, 1995, bearing interest at the rate of prime
         plus 3 percent in the principal amount of $91,062. This amount remains
         outstanding as of December 31, 2003.

         (2) Note dated October 1, 1995 bearing interest at the rate of 7% as a
         result of various advances as to the Company in the principal amount of
         $483,348 as of December 31, 2003.

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

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

         As of December 31, 2003, the outstanding principal and accrued but
         unpaid interest on the obligations listed under numbers 1 through 4 to
         Mr. Amir amounted to $ 816,553.

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

         Prior to conversion of his Series A Preferred Stock into common stock,
         Mr. Amir was entitled to have received dividends in the amount of
         $91,551 of which $59,338 remains outstanding (See Note 7(a)).

         As of December 31, 2003, the Company owed Mr. Amir $ 18,963 in
         un-reimbursed business expenses and $91,667 in accrued but unpaid
         salary.

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




                                      -15-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================



         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 December  31,  2003,  the Company was indebted to Mr. Amir in the
         aggregate amount of $1,011,521.

(b)      By virtue of the  merger of Clean Age  Minerals  Incorporated  ("CAMI")
         with  Strategic  Minerals,   Inc.  on  September  19,  2000,  Strategic
         Minerals,  Inc.  assumed the obligation of CAMI to Mr. Robert E. Martin
         in the amount of $134,811 ("Martin Debt").  The Martin Debt was to have
         been satisfied on or before  September 18, 2001 but was not and remains
         outstanding.  As of  December  31,  2003,  the Martin  Debt  amounts to
         $169,843representing  $134,811 in principal  and $35,032 in accrued but
         unpaid  interest.  The Martin Debt is evidenced by a Note providing for
         an annual  rate of interest of 8%.  These  amounts are  included in the
         amounts shown for the Company's  obligation to the former  officers and
         directors of Clean Age Minerals  Incorporated.  (See Note 7(c)).  As of
         December 31, 2003, the Company owed Mr. Martin  $112,501 in accrued but
         unpaid salary and $10,764 in accrued and unpaid  reimbursable  business
         expenses.

(c)      Novinskie Debt. Under the terms of Mr. Novinskie's employment agreement
         (See Note 13(b)), Mr. Novinskie was to have received a cash bonus of
         $25,000 as of September 30, 2002. This bonus was not paid. As of
         December 31, 2003, the Company owed Mr. Novinskie $35,006 in
         unreimbursed expenses and $91,670 in accrued but unpaid salary and
         $25,000 in accrued and unpaid bonuses (as discussed previously).

         Mr. Novinskie converted $10,000 of indebtedness into 71,942 shares of
         Common Stock as of December 3, 2002. The conversion was at the average
         of the closing bid and asking price for the Common Stock for the five
         trading days prior to the date of conversion. As of December 31, 2003,
         the Company was indebted to Mr. Novinskie in the aggregate amount of
         $151,676.


9.       Debentures

                                                        2003             2002
                                                        ----             ----

                  8% Convertible Debentures           $30,000          $30,000




                                      -16-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


         a.       8% Convertible Debentures

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

10.      Long-Term Debt

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

         a.       Heller Financial, Inc.

                  In August 1997, the Company entered into an arrangement with
         Heller Financial, Inc. ("Heller") whereby Heller agreed to provide the
         Company with up to $15,000,000 to rework existing horizontal wells,
         re-complete its vertical wells as horizontal wells, and develop
         additional acreage. Under the terms of the agreement, all of the
         properties of Westlands were transferred to a newly formed limited
         partnership, Tri-Coastal Energy, L.P., the general partner of which is
         Tri-Coastal Energy, Inc., (Tri-Coastal) and the sole limited partner of
         which is Westlands. Westlands is also the sole shareholder of
         Tri-Coastal Energy, Inc. The amount outstanding (principal and accrued
         interest) under this arrangement as of 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.




                                      -17-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================



                  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 management, ownership or in any fashion.
         The Company has done other financings (see Note 10(b) below) with
         Sonata previously, and the Company has consulted for Sonata and/or its
         affiliated entities regarding oil and gas projects, acquisitions,
         exploration and development plays.

                  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 agree 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

                  (3) extend the expiration dates for the warrants currently
         held by Sonata until December 31, 2007 (see Note 11 (b))

                  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 Seconded Amended
         Loan Agreement are collectively referred to as the "Sonata Loan
         Agreement").




                                      -18-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


                  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;

                  (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.

                  The transaction resulted in an extraordinary net benefit
         amounting to $5,787,687.







                                      -19-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================



                  As a result of the extraordinary benefit resulting from
         Sonata's acquisition of the Heller Loan as set forth above, the
         "Earnings Per Share Calculations" should be compared as follows:
<TABLE>
<CAPTION>


<S>                                                                     <C>                  <C>
Net Income (loss) (before extraordinary gain)                           $(663,163)           $(580,564)
Basic and Fully Diluted Income (loss)/Share,                                ($.02)               ($.03)
(calculated on 28,307,975 shares outstanding)

Extraordinary Item, Gain on debt forgiveness                            $5,787,687
Net Gain (Loss)/share, Basic and fully Diluted                           $.20/$.15

Net Income (loss)(including extraordinary gain)                         $5,124,523           $(580,564)
Basic and Fully Diluted Income (loss)/Share                              $.18/$.13               ($.03)
     (calculated on 28,307,975 shares outstanding, Basic &
      39.327,554 shares, Fully Diluted Basis)
</TABLE>

                  THE COMPANY VIEWS THE SONATA ACQUISITION OF THE HELLER LOAN
         AND THE SONATA LOAN AGREEMENT AS AN UNUSUAL AND INFREQUENT
         (NON-RECURRING) EVENT AND THEREFORE TREATED THE NET FINANCIAL IMPACT ON
         THE COMPANY'S FINANCIAL STATEMENTS AS AN EXTRAORDINARY GAIN.

         b. Sonata Investment Company, LTD. (See also Note 10(a) above).

         During the third quarter of fiscal 1997, Sustainable entered into a
         loan agreement with Sonata Investment Company, LTD. for $250,000, which
         remained outstanding as of December 31, 2000. Sustainable had the right
         to request an additional $250,000 prior to December 31, 1999, which was
         not exercised. The Company and Westlands were guarantors of the loan
         with Westland's (now Tri-Coastal Energy, L.P.) wells being pledged as
         collateral, subordinated to the Heller Financing. The loan was to have
         been repaid out of 25% of Sustainable's net cash flow with any
         remaining balance due by December 31, 1999. Interest is at 12%. In
         addition, Sonata received a profits participation of 25% of the net
         profits of Sustainable while the loan was outstanding and 20% after the
         loan is repaid (after payout). While the obligations were outstanding,
         Sonata sought and the Company agreed to grant Sonata additional
         collateral to secure its loan in the nature of a security interest in
         the Patent then owned by Matrix-Loc and the mineral leases owned by
         subsidiaries of CAMI. The totality of the Sonata debt, plus all accrued
         and unpaid interest was satisfied on November 30, 2001, and all
         collateral for the loan was released.





                                      -20-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================



         c.       First Regional Bank

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


11.      Capital Stock
<TABLE>
<CAPTION>

                                                                                                          NUMBER OF
                                                                                                           SERIES B
                                                                               NUMBER OF SERIES           PREFERRED
                                                  NUMBER OF COMMON                  A PREFERRED          SHARES PAR
                                                 SHARES, PAR VALUE            SHARES PAR VALUE          VALUE $0.01
                                                   $0.01 PER SHARE          $0.01 PER SHARE (1)       PER SHARE (1)
                                                   ---------------          -------------------       -------------

<S>                                               <C>                          <C>                   <C>
Balance as of December 31, 2002                         21,101,630                   8,000                375,000
Issuance on the conversion of (2)                        1,520,000                                       (190,000)
     Series B Preferred
Issuance on Payment of Dividends (2)                       552,950
     On Series B Preferred
Issuance to Sonata as payment for (3)                      250,000
     L/T Debt Financing
Issuance on Terms of Terra Silex Financing(4)              220,169
Issuance in satisfaction of obligations (5)              4,257,374
     Under CCP Debenture & Equity Financing
Issuance on payment of obligations (6)                      10,595
     By H. P. Pryor, a Director of the Company &
     Mr. Lyons, a printer used by the Company
Issuance on Conversion of debt by Mr. Trainor (7)          395,257
     Counsel to the Company

Ending Balance as of December 31, 2003                  28,307,975                   8,000                185,000
                                                        ----------                   -----                -------
</TABLE>


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



                                      -21-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


(2)  During Fiscal Year 2003, the holders of Series B Preferred Stock converted
     190,000 shares of Preferred Stock for 1,520,000 shares of Common Stock. The
     stock was converted at the price of $1.25 per share of Common Stock. The
     Series B Preferred Stock has a face value of $10.00 per share. Interest was
     also paid in common stock at the time of conversion.

(3)  On December 31, 2003, Sonata Investment Company, Ltd. ("Sonata") acquired
     the Heller Loan (See Note 10(a)) and reduced the face amount of the Loan.
     As a condition of and as part of the fee for acquiring the Heller Loan (See
     Note 10(a)) and reducing the loan to $655,000 Sonata was given 250,000
     shares of common stock. The closing price for the Company's common stock on
     December 30, 2003, he day prior to the award, was $.906 per share. The
     value of the stock given to Sonata was thus $226,500.

(4)  Terra Silex Holding, LLC was issued 220,169 shares of Common Stock in
     accordance with Paragraph 6.3 of the Terra Silex Stock Purchase Agreement
     at a price of $.117 per share. Paragraph 6.3 of the Terra Silex Stock
     Purchase Agreement, Antidilution, gives Terra Silex Holdings, LLC the right
     to purchase stock should the Company sell over 500,000 shares in "one
     block". The conversion of the Cornell Capital Debenture triggered Terra
     Silex's right to exercise the antidilution provisions of its agreement with
     the Company.

(5)  The issuance of the shares resulted for Cornell Capital's conversion of its
     $300,000 debenture into common stock of the Company. Cornell Capital
     converted the Debenture into common stock at an amount equal to eighty
     percent (80%) of the average of the three (3) lowest bid Closing Bid Prices
     of the Company's common stock for the five (5) trading days immediately
     preceding the date of the conversion of the Debenture into common stock.

(6)  As of February 28, 2003, Mr. Pryor, a director of the Company, converted
     $450.75 of debt owed to him by the Company into 3,563 shares of common
     stock. Mr. Lyons accepted 7,032 shares in full satisfaction of the
     Company's obligation to his printing company

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

     During Fiscal 2003, the Company issued share of it common stock in-lieu of
     monetary payments to certain third party venders, directors, attorneys
     and/or employees of the Company for services, debt and/or products
     provided. In accordance with procedures established SFAS 123, the Company
     values the stock consideration paid for all such market priced services,
     debt and/or products at the fair market value of the security issued at the
     time of its issuance. The Company has followed the practice of utilizing
     the average of the bid and offer closing prices for its stock for the five
     business days immediately preceding the issuance date as a measure of the
     fair market value of its securities


                                      -22-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         a.       Common Stock Options
<TABLE>
<CAPTION>

                                                       December 31,          December 31,
                                                          2003                   2002
                                                       ------------          ------------
                  <S>                                  <C>                  <C>
                  Outstanding and Exercisable(1)
                   at beginning of period               5,500,000             6,110,000

                  Canceled                                     --              (524,384)

                  Granted                                      --                    --

                  Reclassified                                 --               (85,616)

                  Exercised                                    --                  ( --)

                  Outstanding and Exercisable (2)
                   at end of period                     5,500,000             5,500,000
                                                        ---------             ---------
</TABLE>

         (1) Of the 5,500,000 options outstanding, 4,450,000 are held by current
         officers, directors and employees of the Company. The exercise price
         for the options held by insiders range from $0.25 per share to $1.08
         per share. On November 12, 2002, 110,000 options awarded under the
         Company's Non-Qualified Stock Plan expired. These options had an
         exercise price of $2.19 per share.

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

                  b.       Common Stock Warrants

         Common Stock warrants outstanding at December 31, 2003, consist of the
following(1):

<TABLE>
<CAPTION>

                                                                                            Price Per
Issuance                              Expiration Date                 Amount (1)               Share
--------                              ---------------                 ----------               -----

<S>                                <C>                                <C>                  <C>
Financing Sources (2)              November 20, 2005 to                                      $0.55 to
                                     December 31, 2007                699,579                  $1.05

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

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

</TABLE>

                                      -23
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================



         (1)      Financing Sources

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

         On November 28, 2001, a total of 435,941 warrants to purchase common
         stock were granted to Sonata Investment Ltd. (warrants for 395,273
         shares of common stock ("Sonata Warrant")) and Standard Energy
         (warrants for 40, 668 shares of common stock ("Standard Warrant")) as
         consideration for entering into the Loan Conversion Agreement dated
         August 1, 2001. The Loan Conversion Agreement extended the date by
         which the Company had to satisfy its obligations to both Sonata
         Investment Company, Ltd. ("Sonata") (See Note 10(b)) and Standard
         Energy Company ("Standard") and granted both Sonata and Standard the
         right to convert the debt into common stock of the Company at such 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
         the Heller Loan at an exercise price of $.906 per share with an
         expiration date of December 31, 2007 (See Note 10(a)).

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


                                      -24-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================




         (3)      Terra Silex Warrant

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

         (4)      Sumitomo Warrants

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

         c.       Net Income Per Share

         Net income per share (primary basis) was calculated on the primary
         basis of the weighted average number of common shares outstanding that
         amounted to 29,936,136 for the period ended December 31, 2003
         (12/31/2002 - 20,101,630). For the periods ending December 31, 2003 and
         2002, the exercise of the options and warrants outstanding as at year
         end did not have a dilutive effect on the net income per share (see
         also Note 10(a)).

         d.       Payment of Accrued Dividends

         $1,384,021 of accrued dividends attributable to the 8% Cumulative
         Convertible Preferred Stock issued in the acquisition of CAMI ("CAMI
         Preferred") was paid in 1,058,168 shares of Common Stock upon
         conversion of 1,816,800 shares of the CAMI Preferred Stock to Common
         Stock commencing October, 2001 through December 31, 2003. See also Note
         14(b), regarding payment of accrued dividends on the Series A Preferred
         Stock held by the Kanes through December 31, 2003.

12.      Income Taxes

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



                                      -25-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================



13.      Employment Contracts and Commitments

a.       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 also has not been paid. (See Note 8.) Under Mr. Martin's
         Key Man Contract, he was granted a salary of $50,000 for the six month
         period April 1, 2002 through September 30, 2002 ($8,333.34 per month),
         and $100,000 per year for the remaining two (2) years of his Key Man
         Contract. In accordance with his contract, the Company commenced paying
         Mr. Martin's salary as of April 1, 2002.

14.      Litigation Settlement and Pending Litigation

a.       Kane v. Daleco Resources Corp., et. al. On or about January 14, 2000,
         Stanley B. Kane, et. al. commenced an action in the Superior Court, Los
         Angeles, California to enforce their right to have the Company
         repurchase 16,000 shares (stated value $50,000 purchase) of Series A,
         10% Cumulative Preferred Stock. The Plaintiffs had the right to put the
         stock to the Company on August 20, 1999, which they did. Although the
         Company continued to pay quarterly dividends on the Series A Preferred
         Stock, it did not redeem the shares due to its lack of liquidity. Also
         named in the suit were Messrs. Dov Amir (a current officer and director
         of the Company) and Mr. Louis Erlich (who was an officer and director
         of the Company at the time of the issuance of the Series A Preferred
         Stock) who had given personal guaranties to the Plaintiffs.

         Mr. Amir satisfied his obligation under his guaranty to purchase
         one-half on 8,000 shares from the Plaintiffs. The Company entered into
         Stipulation for the Entry of Final Judgment and Judgment thereon as to
         Daleco Resources Corporation, pursuant to which the Company shall have
         until August 1, 2001 in which to redeem the remaining 8,000 shares for
         $400,000 plus accrued dividends through the date of settlement at a
         rate of ten percent (10%) per annum. The Kanes have been granting the
         Company an extension of the August 1, 2001 date on a month-to-month
         basis. On December 7, 2001, the Company paid the Kanes $90,000
         representing all accrued and unpaid dividends on the Series A Preferred
         Stock through December 31, 2001. The Company has paid all dividends due
         and payable to the Kanes for periods through the fiscal quarter ending
         March 31, 2003. Payments for the last three quarters ending December
         31, 2003, in the amount of $40,000, are still outstanding.



                                      -26-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

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


15.      Acquisitions

         Daleco's 16/6, Inc.

         Effective July 7, 2001, Daleco acquired 16/6, Inc., a software
development firm The I(2) technology covers the ability to extract certain text
documentation from existing published documents from the Internet and
micro-payments thereof.

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



                                      -27-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================






Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.
         -----------------------------------------------------------------------

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

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

         The first fiscal quarter, ending December 31, 2003 continued the
         Company's planned efforts to commercialize the mineral holdings of its
         wholly owned subsidiary, Clean Age Minerals, Inc. and the tropical
         hardwood timber interests of its wholly owned subsidiary Sustainable
         Forest Industries, Inc. The Company also took steps to address the
         financing structure available to its subsidiaries active in the oil and
         natural gas production sector.

         Being a natural resource centric company, The Company's performance
         during its first fiscal quarter ended December 31, 2003, was influenced
         by a variety of factors which were 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 and the demand and
         pricing, both domestically or internationally, for the Company's timber
         and industrial minerals. As in previous periods, the Company remained
         highly dependent on the revenues derived from the sale of its oil and
         natural gas production. During the quarter ending December 31, 2003,
         the Company's energy segments provided in excess of 95% of the cash
         receipts to the Company. The segment's performance as measured by
         operating cash flows declined from the prior year period despite the
         continuation of favorable oil and gas prices. The decline was the
         direct result of an increase in well workover costs required to
         maintain production levels from the Company's managed properties.



                                      -28-
<PAGE>



         During the quarter, the Company's direct expenditures related to the
         commercialization of its mineral holdings increased by 70% over the
         prior year's period to $59,484. This increase was partially offset by
         the receipt of the initial revenues derived from the sale of mineral
         based products. Clean Age Minerals was able to commence extraction
         operations and make initial deliveries of products from both its
         Calcium Carbonate mine in New Mexico and its Zeolite deposit in Texas.
         The Zeolitic material was utilized as a base mineral for the
         formulation of the Company's ReNuGen(TM) product that is based on its
         CA-Series environmental technology. The Company's efforts to
         commercialize the Sierra Kaolin products from its New Mexico Kaolin
         deposit are ongoing and are focused on product development as well as
         identified opportunities for both joint venturing and/or internal
         development of Kaolin processing capabilities.

         Within its timber segment, Sustainable Forest Industries has continued
         its efforts to commercially market tropical hardwoods into domestic
         markets. As a result of these efforts, plans are to introduce a
         construction shingles product utilizing the Wallaba tropical hardwood
         species later this fiscal year. Market surveys and certification
         testing have indicated that the Wallaba Roofing and Siding Shingles
         have significant performance capabilities as compared to products
         currently available on the market.

         For the three month period ending December 31, 2003, total operating
         revenues increased nominally by $19,787 (5.4%) while direct operating
         expenses increased by $103,584 (20.6%) as compared with the same
         quarter last year. The increase in direct operating expense is
         associated with increased levels of activity in all business segments
         but was most impacted by higher levels of expenditures for producing
         well maintenance within the oil and natural gas sector. For the period,
         the Company recorded a loss before extraordinary items of $663,123 as
         compared to a loss of $580,564 for the prior fiscal year's first
         quarter. In addition, the Company recorded an extraordinary gain of
         $5,787,687 during the current fiscal quarter. This significant
         financial item is the direct result of the Company's successful efforts
         relating to the renegotiation of certain debt obligations. SINCE A
         RESTRUCTURING OF THIS TYPE IS CONSIDERED TO BE AN UNUSUAL AND AN
         INFREQUENT (NON-RECURRING) EVENT, THE NET IMPACT ON THE COMPANY'S
         FINANCIAL STATEMENTS WAS RECORDED AND TREATED AS AN EXTRAORDINARY GAIN.
         WHEN THE EXTRAORDINARY GAIN IS INCLUDED, THE COMPANY RECORDED A
         NON-RECURRING INCOME FOR THE QUARTER OF $5,124,523.



                                      -29-
<PAGE>

Item 3 - Controls and Procedures

                  Sarbanes-Oxley Act

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

         The SOA is applicable to all publicly traded reporting companies no
         matter how small or large. The SOA provides for additional controls
         such as the chief executive officer's certificate regarding the
         accuracy of the Company's financial statements and providing for a
         criminal penalty for making a false statement to the certification by
         an executive officer that the financial statements do not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements, in light of the circumstances under
         which the statement were made, not misleading with respect to the
         period covered by the annual report. The certification also requires
         that the executive officer of the company certify that the financial
         statements and other materials presented in the annual report fairly
         present all material respects the financial condition, results of
         operations and cash flows of the Company as of and for the periods
         covered by the annual report. This requirement exceeds the previous
         requirement that the financial statements merely be presented in
         accordance with generally accepted accounting principles.

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

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

                                      -30-
<PAGE>

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

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

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

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

Item 1.  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.

                                      -31-
<PAGE>

                  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.

         Item 3   Heller Debt.

                  In August 1997, the Company entered into an arrangement with
         Heller Financial, Inc. ("Heller") whereby Heller agreed to provide the
         Company with up to $15,000,000 to rework existing horizontal wells,
         re-complete its vertical wells as horizontal wells, and develop
         additional acreage. Under the terms of the agreement, all of the
         properties of Westlands were transferred to a newly formed limited
         partnership, Tri-Coastal Energy, L.P., the general partner of which is
         Tri-Coastal Energy, Inc., (Tri-Coastal) and the sole limited partner of
         which is Westlands. Westlands is also the sole shareholder of
         Tri-Coastal Energy, Inc. The amount outstanding (principal and accrued
         interest) under this arrangement as of 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) below) with Sonata previously, and the
         Company has consulted for Sonata and/or its affiliated entities
         regarding oil and gas projects, acquisitions, exploration and
         development.


                                      -32-
<PAGE>

                  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 agree to:

                  (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 amended 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.

                                      -33-
<PAGE>


                  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;

                  (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.

                  The transaction resulted in an extraordinary net benefit
amounting to $5,787,687.

         As a result of the extraordinary benefit resulting from Sonata's
acquisition of the Heller Loan as set forth above, the "Earnings Per Share
Calculations" should be compared as follows:
<TABLE>
<CAPTION>

<S>                                                               <C>                  <C>
Net Income (loss) (before extraordinary gain)                     $(663,163)           $(580,564)
Basic and Fully Diluted Income (loss)/Share                           ($.02)               ($.03)
(calculated on 28,307,975 shares outstanding)

Extraordinary Item, Gain on debt forgiveness                     $5,787,687
Basic and Fully Diluted Net Gain (Loss)/share                     $.20/$.15

Net Income (loss)(including extraordinary gain)                  $5,124,523            $(580,564)
Basic and Fully Diluted Net Income (Loss)/Share                   $.18/$.13                ($.03)
     (calculated on 28,307,975 shares outstanding, Basic &
      39.327,554 shares, Fully Diluted Basis)

</TABLE>

                                      -34-
<PAGE>

                  THE COMPANY VIEWS THE SONATA ACQUISITION OF THE HELLER LOAN
         AND THE SONATA LOAN AGREEMENT AS UNUSUAL AND INFREQUENT (NON-RECURRING)
         AND THEREFORE TREATED THE NET FINANCIAL IMPACT ON THE COMPANY'S
         FINANCIAL STATEMENTS AS AN EXTRAORDINARY GAIN.



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

                           None

Item 5            Other Information

                           None

ITEM 6   Exhibits and Reports on Form 8-K

                           None.



                                      -35-
<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:  February 17, 2004           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:  February 17, 2004                  /s/ Gary J. Novinskie
                                          --------------------------------------
                                          Gary J. Novinskie
                                          President and Director


Date: February 17, 2004                   /s/ Dov Amir
                                          --------------------------------------
                                          Dov Amir
                                          Chief Executive Officer and Chairman
                                          of the Board of Directors




                                      -36-
<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 ending December 31, 2003.

         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

         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:  February 17, 2004                  /s/ Gary J. Novinskie
                                          --------------------------------------
                                          Gary J. Novinskie
                                          President and Chief Financial Officer





<PAGE>




In connection with the Quarterly Report of Daleco Resources Corporation (the
"Company") on Form 10-QSB for the period ending December 31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I, Dov
Amir, 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/ Dov Amir
                                          -------------------------------------
                                          Dov Amir
                                          Chief Executive Officer
                                          February 17, 2004