<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                 FIRST AMENDMENT
                                   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, 2002
                               -----------------

( )      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,
2002: 21,101,630

Number of shares outstanding of the issuer's Series A preferred stock as of
December 31, 2002: 8,000

Number of shares outstanding of the issuer's Series B preferred stock as of
December 31, 2002: 375,000


<PAGE>


                                      INDEX
<TABLE>
<CAPTION>

                                                                                                             PAGE
PART I   FINANCIAL INFORMATION

<S>               <C>                                                                                      <C>
   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......................................................   28

ITEM 3            CONTROLS AND PROCEDURES..................................................................   29

PART II           OTHER INFORMATION........................................................................   30

ITEM 2            CHANGE IN SECURITIES.....................................................................   30

ITEM 3            HELLER DEBT..............................................................................   31

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

ITEM 6            Exhibits and Reports on Form 8-K.........................................................   32

SIGNATURES        .........................................................................................   33

</TABLE>



                                       2
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2002--PREPARED BY MANAGEMENT
(UNAUDITED) AND SEPTEMBER 30, 2002 (AUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                         December 31, 2002      September 30, 2002
                                                                         -----------------      ------------------
                                                                            (unaudited)             (audited)
 ASSETS
Current Assets
<S>                                                                        <C>                     <C>
         Cash Accounts                                                     $    422,220            $    492,939
         C/Ds                                                                   132,743                 132,743
         Account receivables                                                    610,884                 848,487
         Jib Receivables                                                           --                      --
         Prepaid Mineral Royalties (note 5c)                                    240,150                 240,150
         Other Current Assets                                                     5,369                   5,369
                                                                           ------------            ------------
                      Total Current Assets                                 $  1,411,366            $  1,719,688
                                                                           ------------            ------------
Other Assets
         Investment in Mining Joint Venture                                $    232,197            $    232,197
         Goodwill                                                               813,357                 813,357
         Accumulated Amortization Goodwill                                     (813,357)               (813,357)
                  Net Goodwill                                                     --                      --
         Debt Placement Costs                                                   584,815                 584,815
         Accumulated Amortization                                              (584,815)               (584,815
                  Net Debt Placement Costs                                         --                      --
         Equity Placement Costs                                                    --                      --
         Accumulated Amortization Equity Costs                                     --                      --
                  Net Equity Placement                                             --                      --
         Other Assets                                                              --                      --
                      Total Other Assets                                   $    232,197            $    232,197
                                                                           ============            ============
Fixed Assets
         Oil and Gas Properties (note 3)                                   $ 12,607,950            $ 12,607,950
         Accumulated DD&A                                                    (6,432,950)             (6,307,950)
                  Net Oil and Gas Property                                    6,175,000               6,300,000
         Mineral Properties (note 5)                                         12,609,100              12,609,100
         Accumulated DD&A                                                          --                      --
                  Net Mineral Property                                       12,609,100              12,609,100
         Timber Properties (note 4)                                           1,028,342               1,028,342
         Accumulated DD&A                                                    (1,028,342)             (1,028,342)
                  Net Timber Property                                              --                      --
         Technology/Patent Rights (note 6)                                    7,767,000               7,767,000
         Accumulated DD&A                                                    (1,591,338)             (1,399,743)
                  Net Tech./Patent Rights                                     6,175,662               6,367,257
         Property, Equipment, Furniture & Fixtures                              514,749                 514,749
         Accum. Depr (P, E, P &  P)                                            (481,427)               (476,766)
                  Net (P, E, P & P)                                              33,322                  37,983
         Leasehold Improvements                                                    --                      --
         Accu. Amort. (Lease  Improvements)                                        --                      --
                  Net Lease Improvements                                           --                      --
                                                                           ------------            ------------
                      a)   Total Fixed Assets                              $ 24,993,084            $ 25,314,340
                                                                           ============            ============
                      b)   Total Assets                                    $ 26,636,647            $ 27,266,225
                                                                           ============            ============

</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                       3
<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2002--PREPARED BY MANAGEMENT
(UNAUDITED) AND SEPTEMBER 30, 2002 (AUDITED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                                         December 31, 2002      September 30, 2002
                                                                         -----------------      ------------------
                                                                            (unaudited)             (audited)

LIABILITIES
Current Liabilities
<S>                                                                                       <C>             <C>
         Trade A/P                                                               $    571,884    $    784,520
         Notes Payable (note 7)                                                       142,543         142,543
         Note Due related Pty (note 8)                                                698,196         698,196
         HFI Financing (note 10a)                                                   5,154,783       5,154,783
         Loans--1st Regional (note 10d)                                               100,000         100,000
         CAMI Notes                                                                   514,881         514,881
         Sonata and Standard Energy  Financing (notes 7b and 10b)                        --              --
         Accrued Interest Expense (notes 10a and 10b)                               1,971,407       9,974,261
         Accrued Dividend Expense (notes 11d and 16)                                1,835,106       1,750,106
         Accrued Expense Reimbursements                                                64,286          55,938
         Accrued Salary Expense                                                       223,724         170,595
                                                                                 ------------    ------------
                      Total Current Liabilities                                  $ 11,276,810    $ 11,345,823
                                                                                 ------------    ------------

Long Term Debt                                                                        225,000    $    300,000

         Total Long Term Debt                                                    $    225,000    $    300,000
                                                                                 ------------    ------------
                      Total Liabilities                                          $ 11,501,810    $ 11,645,823
                                                                                 ------------    ------------
EQUITY
         Beginning Retained Earnings                                             $(22,421,362)   $(18,185,097)
         Current Period Income/(loss)                                                (580,564      (3,511,493)
         Dividends Paid (Cash & Stock)                                                   --          (724,772)
         Add. Paid in Capital                                                      37,921,917      37,836,061
         Preferred Stock (note 11)                                                      3,830           3,830
         Common Stock (note 11)                                                       211,016         201,873

                                   Total Equity                                  $ 15,134,837    $ 15,620,402
                                                                                 ------------    ------------
                      Total Liabilities and Equity                               $ 26,636,647    $ 27,266,225
                                                                                 ============    ============

</TABLE>




                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS



                                       4
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 -- PREPARED BY MANAGEMENT (UNAUDITED)

<TABLE>
<CAPTION>

                                                                               2002          2001
                                                                             ---------    ---------
Revenue
<S>                                                                          <C>          <C>
         O&G Sales                                                           $ 344,457    $ 243,695
         N P I Receipts                                                           --           --
         Royalty Receipts                                                        5,308        4,079
         Timber Sales                                                             --           --
         Mineral Sales                                                            --           --
                           Total Operating Income                            $ 349,765    $ 247,775
                                                                             ---------    ---------
         Interest Income                                                          --           --
         Well Management                                                        17,111       17,111
         Ptr. Management                                                          --           --
         Other Income                                                             --           --
                           Total Other Income                                $  17,111    $  17,111
                                                                             ---------    ---------
         Total Income                                                        $ 366,876    $ 264,886
                                                                             =========    =========
Expenses
         LOE - Oil and Gas                                                     158,223      196,392
         LOE--Timber                                                             5,500            0
         LOE--Minerals                                                          35,000            0
         N P I Exp                                                                --           --
         Prod Tax                                                               27,538       19,066
         DD&A (Fixed Assets)                                                   321,256      283,945
         Third Party Distributions                                               4,029       32,241
                           Total Operational Expense                         $ 551,546    $ 531,645
                                                                             ---------    ---------

         Interest Expense                                                      180,350      184,157
         General and Administrative Expenses                                   120,021      132,512
         Legal and Professional Fees                                           120,021       90,224
         Financial Advisor Fees                                                   --         30,000
         Shareholder Information                                                 1,841        5,512
         Amortization of Debt Costs                                               --           --
         Amortization of Goodwill                                            $    --      $    --
                           Total Expenses                                    $ 947,440    $ 974,209
                                                                             ---------    ---------
                           Net Income (Loss)                                 $(580,564    $(709,324)
                                                                             =========    =========
         Basic and Fully Diluted Net Loss per Common Share                   $    (.03)   $    (.04)
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                       5

<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------


                                              2002            2001
                                          -------------  --------------
Deficit - Beginning of Period             $(22,421,362)  ($18, 185,097)
Net loss for the period                       (580,564)      (709, 325)
Dividends on Preferred Stock                       (--)       (328,060)
Deficit - End of Period                   $(23,086,926    ($19,222,482)
                                          ============    ============











                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       6

<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                                                                      2002           2001
                                                                  -----------    -----------
Operating Activities
<S>                                                               <C>              <C>
Net Income/( loss) for the period                                 $  (580,564)   $   (709,32)
Items not affecting working capital
         Change in DD & A for period                              $   321,256    $  (257,246)
         Debt Amortization -                                                0           --
         Amortization of Good Will                                          0           --
                           Sub Total                              $   321,256      (257, 246)
                                                                  -----------    -----------
Items affecting Working Capital:
         (Increase) Decrease in other assets                      $         0    $  (300,000)
         (Increase) Decrease in Pre-paid Royalties                          0           --
         (Increase) Decrease in accounts receivable                   237,603         72,447
         Increase (Decrease) in Trade payables                       (212,637)    (2,420,824)
         Increase (Decrease) in other Accrued Expenses                 61,477        (30,207)
         Gain/(loss) on Sale of Properties                                  0           --
                           Sub Total                              $    86,443    $(2,420,824)
                                                                  -----------    -----------

Cash provided (used) for operating activities                     $  (172,865)   $(1,968,745)
                                                                  -----------    -----------

Investing Activities
         (Increase)/decrease in Investment in Subsidiaries        $         0    $      --
         Leasing, Acquisition and Well Costs Incurred                      00           --

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

Financing Activities
         Increase/(decrease) Notes due Related Parties            $         0    $     6,000
         Increase/(decrease) Other Notes due                                0       (349,092)
         Increase/(decrease) Accrued Interest                          (2,854)       (45,835)
         Increase/(decrease) Accrued Dividends                         85,000        (89,689)
         Dividends Paid                                                     0           --
         Proceeds of Equity Issuance                                   95,000      1,300,000
         Proceeds of L/ Debt                                             --          (75,000)
                                                                                 -----------
Cash provided from/(used for) financing activities                $   102,146    $   821,375
                                                                  -----------    -----------
Net Increase/(decrease) in cash for period                        $   (70,719)   $(1,147,370)

Cash and Cash Equivalents - Beginning of Period                   $   625,682    $ 2,501,040
                                                                  -----------    -----------
Cash and Cash Equivalents - End of Period                         $   554,963    $ 1,353,670
                                                                  ===========    ===========
         Change in Cash FY 1st Qtr                                $   (70,719)   $(1,147,370)
                                                                  ===========    ===========
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                       7
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - 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, 2002, the
Company reported a loss of $580,564. he ability of the Company to meet its total
liabilities of $11, 645,823, of which $5,154,783 is nonrecourse to the Company
(See Note 10a) and to continue as a going concern is dependent upon the
availability of future funding, achieving profitable timber operations and
successful development of newly acquired 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.

         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, 2002, the Company and certain of it subsidiaries
were in default of certain debt obligations (See Notes 7, 8 and 10(a) below).
The holders of these instruments are working with the Company to achieve the
ultimate extinguishment of the obligations.

2.       Summary of Significant Accounting Policies

         a.       Use of estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles 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, 2002 AND 2001 - 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, 2002 AND 2001 - 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, represent those associated with the Heller Financial,
Inc. loan (see Note 10) and were being amortized over a period of five years The
debt issuance costs had been fully amortized as of March 31, 2002.

         i.       Cash and Cash Equivalents

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

                                       10
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

         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

                                                           2002          2001
                                                       -----------   -----------

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

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

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

Accumulated depletion, depreciation and amortization     6,432,950     5,577,950
                                                       -----------   -----------
                                                       $ 6,175,000   $ 6,730,000
                                                       ===========   ===========

(a)      Sale of Oil and Gas Properties

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

         Since the Company, as managing general partner, was responsible for the
receipt and distribution of all funds from the sales of these assets, 100% of
the proceeds were tabulated as part of the gross revenues of the Company on its
financial statements for the relevant periods. As indicated on those statements,
net funds attributable to the limited partners of Developing Energy Partners I,
L.P. were shown as both a line item, "Third Party Distributions", and within the
appropriate notes to those financial statements.

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

                                       11

<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

4.       Timber Rights Acquisition

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

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

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

         The acquisition has been accounted for by the purchase method. The
purchase price of $962,500 was determined based on the fair value of the 150,000
common shares of the Company given to acquire Sustainable. The fair value of the
net liabilities of Sustainable acquired was $65,842 resulting in consideration
of approximately $1,028,500 which has been recorded as timber rights. To reflect
adjustments to the carry value of these assets, the Company has taken charges
accumulating $1,028,500 as of December 31, 2002.

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

5.       Mineral Properties

a.       Clean Age Minerals Incorporated. In September 2000, the Company
         acquired Clean Age Minerals Incorporated ("CAMI") by way of merger with
         the Company's wholly owned subsidiary, Strategic Minerals, Inc. CAMI
         has three (3) subsidiaries, 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) five (5) mining claims located in
         Sierra County, New Mexico covering 800 acres(+/-) of kaolin; (d)
         seventeen (17) mining claims covering 1360 acres (+/-) in Grant County,
         New Mexico containing perlite (note: The perlite property title rights
         associated with the perlite claims are being disputed and may have an
         adverse impact on the Company's ability to the extraction of these
         minerals); and (e) eleven (11) zeolite mining claims covering
         approximately 220 acres(+/-) located in Beaver County, Utah.


                                       12

<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------


         b.       Minerals and Equipment
                                                       2002            2001
         Proven undeveloped lease costs             $12,609,100     $12,609,100
         Mine development costs                            --              --
         Accumulated depletion and                         --              --
         Depreciation
                                                    $12,609,100     $12,609,100
                                                    -----------     -----------

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


6.       Patents & Technology

         As part of the acquisition of Clean Age Minerals Incorporated (See Note
         6(a) above), the Company also acquired U.S. Patent No: 5387738. This
         patent, owned by Clean Age Minerals Incorporated (previously owned by
         Matrix-Loc, Inc. which was acquired by Clean Age Minerals Incorporated
         as a result of Matrix-Loc's merger with Clean Age Minerals as of March
         18, 2002), deals with a reagent and process for the remediation of
         water and contaminated soils. The Company's subsidiary 16/6, Inc. has
         applied for a patent on its I(2) Technology. (Patent Pending
         #09/659641) This patent application covers the ability to extract
         certain text documentation from existing published documents.

                                       13
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

7.       Notes Payable

a.       During the year ended September 30, 1995, the Company received
         $1,100,000 in return for two notes payable, with the producing wells of
         the Company used as collateral. Interest of 10% per annum was due
         monthly. In fiscal 1996, the Company repaid $300,000 of the outstanding
         balance. In fiscal 1997, the remaining $800,000 was converted into
         16,000 shares of 10% cumulative preferred stock, at $50.00 per share
         ("Series A Preferred Stock"). The Series A Preferred Stock was subject
         to a put on August 20, 1999. The holders of the Series A Preferred
         Stock filed a lawsuit in the Los Angeles Superior Court, California
         against the Company, as well as Mr. Amir and Mr. Erlich as guarantors.
         Mr. Amir satisfied his obligation under his guarantee and purchased
         one-half, or 8,000 shares of the Series A Preferred Stock, of the
         16,000 shares of the Series A Preferred Stock owned by the Kanes. The
         Company and Mr. Erlich entered into a Stipulation for the Entry of
         Judgment granting the Company until August 1, 2001 in which to satisfy
         the put for the remaining 8,000 shares of Series A Preferred Stock plus
         accumulated interest. (See Litigation Note 14). Mr. Amir converted his
         Series A Preferred shares into 408,163 shares of Company common stock.
         A portion of the dividends ($32,212..97) due Mr. Amir on the Series A
         Preferred Stock was paid to Mr. Amir in the third quarter of fiscal
         2002. (See Note 8(a)).

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

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, 2002, the total amount payable on these
         notes is $607,575 representing principal of $514,881 and accrued but
         unpaid interest of $92,694.

                                       14

<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - 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 $91,062.00. This amount
         remains outstanding as of December 31, 2002.

         (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
         $445,134 as of December 31, 2002.

         (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, 2002, the outstanding principal and accrued but
         unpaid interest on the obligations listed under numbers 1 through 4 to
         Mr. Amir amounted to $700,752.

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

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

         As of December 31, 2002, the Company owed Mr. Amir $18,846 in
         unreimbursed business expenses and $33,335 in accrued but unpaid
         salary.

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


                                       15

<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - 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, 2002, the Company was indebted to Mr. Amir in the
         aggregate amount of $862,269.

(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, 2002, the Martin Debt amounts to
         $165,645 representing $134,811 in principal and $30,834 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)).

(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, 2002, the Company owed Mr. Novinskie $36,146 in
         unreimbursed expenses and $33,338 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, 2002,
         the Company was indebted to Mr. Novinskie in the aggregate amount of
         $94,484.

9.       Debentures

                                                   2002             2001
                                                   ----             ----

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

         a.       8% Convertible Debentures

         On September 11, 1996, the Company issued $1,310,000 worth of 8%
         convertible debentures with interest payable in stock only and accruing
         until conversion or redemptions after the term of two years. The
         placement agent's fees were 10% of the gross proceeds and 12,111
         warrants at $10.07 expiring November 16, 2001. The debentures may be
         converted after a holding period of 45 days after closing at the lessor
         of: (1) the fixed conversion price ($10.171875), or (2) 75% of the
         average closing bid price for the five trading days immediately
         preceding the date of conversion. As of December 31, 2002, $1,280,000
         of the 8% debentures had been converted into 981,322 common shares.

                                       16
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

10.      Long-Term Debt

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

         a.       Heller Financial, Inc.

         In August 1997, the Company entered into an arrangement with Heller
         Financial, Inc. ("Heller") whereby Heller agreed to provide the Company
         with up to $15,000,000 to rework existing horizontal wells, re-complete
         its vertical wells as horizontal wells, and develop additional acreage.
         Under the terms of the agreement, all of the properties of Westlands
         were transferred to a newly formed limited partnership, Tri-Coastal
         Energy, L.P., the general partner of which is Tri-Coastal Energy, Inc.,
         (Tri-Coastal) and the sole limited partner of which is Westlands.
         Westlands is also the sole shareholder of Tri-Coastal Energy, Inc. The
         amount outstanding (principal and accrued interest) under this
         arrangement as of December 31, 2002 and 2001, was $6,942,138 and
         $7,017,390, respectively. Interest on the borrowings is at prime plus
         2%. Principal is paid out of 85% of the net cash flow from the
         properties. Additional interest is payable from 50% of the net cash
         flow from these properties after the payment of principal. In January
         1999, Heller declared the loan to be in default, as a result of the
         pledged properties failure to generate the required interest payments.
         This was solely attributable to the decrease in the low worldwide
         prices for oil. As a result, the full amount of the Heller Loan has
         been reclassified as current debt. With the recovery of oil prices, the
         Heller Loan has come back into compliance, however, Heller has not
         rescinded its default notice. The obligations to Heller are
         non-recourse to the Company and payable solely out of the oil and
         properties pledged to Heller as collateral.

         b.       Sonata Investment Company, LTD.

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

  7                                     17
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - 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>                               <C>               <C>
Balance as of December 31, 2001                         16,337,614                        8,000             713,000

Issuance on the conversion of                            2,549,793                                        (338,000)
Series B Preferred
Issued to Holders of Series B Preferred
Stock as payment for accrued interest
through the date of conversion (See Note 11(d))            148,531
Issuance on conversion of the Note held
  by David Lincoln (See Note 7(b))                          49,818
Issuance to Cornell Capital Partners, L.P.
  and Westrock Advisors(2)(5)                            1,640,073
Issued to Mr. Novinskie and Mr. Amir(3)(4)                 229,500
Issued to Gary E. Ellison, P.C.
  for legal services(6)                                    146,301
Ending Balance as of December 31, 2002                  21,101,630                        8,000             375,000
                                                        ----------                        -----             -------
</TABLE>


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

                                       18

<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

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

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

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

(5)  On November 27, 2002, Cornell Capital Partners ("CCP") converted $10,000 of
     the $300,000 debenture issued as part of its Equity Line of Credit
     transaction ("Debenture") into 85,470 shares, on December 9, 2002, CCP
     converted $40,000 of the Debenture into 366,972 shares and on December 30,
     2002 CCP converted $25,000 of the Debenture into 318,066 shares, for a
     total of 770,508 shares. On July 24, 2002, the Company entered into a
     $10,000,000 equity line of credit with CCP. As part of the transaction, the
     Company issued a $300,000 Debenture to CCP. The Debenture issued interest
     at six percent (6%) per annum and matured in two years. CCP had the right
     to convert the Debenture into Common Stock of the Company at a price equal
     to the lessor of either (a) an amount equal to one hundred twenty percent
     (120%) of the closing bid price of the Common Stock on July 24, 2002, or
     (b) an amount equal to eighty percent (80%) of the average of the three (3)
     lowest Closing Bid Prices of the Common Stock for the five (5) trading days
     immediately preceding the date of CCP's conversion of the debenture into
     Common Stock.

(6)  On June 25, 2002, the Company satisfied $98,460.77 of indebtedness to Gary
     E. Ellison, P.C. special counsel to the Company by issuing Mr. Ellison
     146,301 shares of Common Stock. This was accomplished through the filing on
     Form S-8 with the Securities and Exchange Commission on June 24, 2002.


                                       19
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------



         a.       Common Stock Options
                                                      December 31,  December 31
                                                         2002          2001
                                                      ------------  -----------
                  Outstanding and Exercisable (3)
                   at beginning of period             6,110,000     3,610,000

                  Canceled                             (524,384)          (--)

                  Granted                                 -----     2,500,000

                  Reclassified                          (85,616)           --

                  Exercised                                 (--)      (50,000)

                  Outstanding and Exercisable (2)
                   at end of period                   5,500,000     6,110,000
                                                      ---------     ---------

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

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


         On November 16, 2001, the Company entered into Key Man Employment
         Contracts with Mr. Dov Amir, Chairman of the Board of Directors and
         Chief Executive Officer of the Company, Mr. Gary J. Novinskie,
         President and Chief Operating Officer of the Company, and Mr. Robert E.
         Martin, a Director of the Company and President of Clean Age Minerals
         Incorporated (previously Strategic Minerals, Inc., see merger
         discussion). Under the employment agreements (see Note 13 below),
         Messrs. Amir and Novinskie were granted options for 500,000 shares of
         common stock and Mr. Martin was granted options for 1,000,000 shares of
         common stock. All these options expire on the third anniversary of the
         vesting of the options or two years after the key man ceases to be an
         employee of the Company. The exercise price for Mr. Martin's options
         are priced at $1.08 per share, 90% of the average closing price for the
         common stock for the five business days prior to October 1, 2001. The
         exercise price for Messrs. Amir's and Novinskie's options is 90% of the
         average closing price for the common stock at the close of business for
         the five trading days immediately preceding June 30, 2002. The exercise
         price was determined to be $0.526 per share Mr. Amir and Mr. Novinskie
         received a signing bonus under the Key Man Contracts of $50,000,
         $25,000 of which is to be paid in common stock on or before June 30,
         2002, at a price equal to the average closing price for the common
         stock for the five business days preceding the date of issuance. Mr.
         Amir and Mr. Novinskie were each awarded 42,808 shares under this
         grant.

                                       20
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

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

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



                                       21
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

         b.       Common Stock Warrants

         Common Stock warrants outstanding at December 31, 2002, consist of the
following(1):

<TABLE>
<CAPTION>

                                                                                                    Price Per
Issuance                                     Expiration Date                Amount (1)                Share
--------                                     ---------------                ----------                -----
<S>                                        <C>                              <C>                   <C>
Financing Sources (2)                       August 1, 2003 to                                       $0.55 to
                                            November 20, 2005                699,579                  $1.05

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

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

</TABLE>

         (1)      Common Stock Warrants Attached to Debenture

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

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


         (2)      Financing Sources

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

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

                                       22
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

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

         (3)      Terra Silex Warrant

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

         (4)      Sumitomo Warrants

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

         c.       Net Income Per Share

         Net income per share (primary basis) was calculated on the primary
         basis of the weighted average number of common shares outstanding which
         amounted to 20,101,630 for the period ended December 31, 2002 (2001 --
         $16,337,614). For the periods ending December 31, 2002 and 2001, the
         exercise of the options and warrants outstanding as at year end did not
         have a dilutive effect on the net income per share.


                                       23
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------


         d.       Payment of Accrued Dividends

         $603,024 of accrued dividends attributable to the 8% Cumulative
         Convertible Preferred Stock issued in the acquisition of CAMI ("CAMI
         Preferred") was paid in 480,998 shares of Common Stock upon conversion
         of 1,626,800 shares of the CAMI Preferred Stock to Common Stock
         commencing October, 2001 through December 31, 2002. See also Note
         14(b), regarding payment of accrued dividends on the Series A Preferred
         Stock held by the Kanes through December 31, 2002.

12.      Income Taxes

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

13.      Employment Contracts and Commitments

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

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


                                       24

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

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

14.      Litigation Settlement and Pending Litigation

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

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


                                    25

<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------

         Mr. Amir satisfied his obligation under his guaranty to purchase
         one-half on 8,000 shares from the Plaintiffs. The Company entered into
         Stipulation for the Entry of Final Judgment and Judgment thereon as to
         Daleco Resources Corporation, pursuant to which the Company shall have
         until August 1, 2001 in which to redeem the remaining 8,000 shares for
         $400,000 plus accrued dividends through the date of settlement at a
         rate of ten percent (10%) per annum. The Kanes have been granting the
         Company an extension of the August 1, 2001 date on a month to month
         basis. On December 7, 2001, the Company paid the Kanes $90,000
         representing all accrued and unpaid dividends on the Series A Preferred
         Stock through December 31, 2001. The Company has paid all dividends due
         and payable to the Kanes for periods through the fiscal quarter ending
         March 31, 2002. Payments for the last two quarters ending September 30,
         2002, in the amount of $20,000, are still outstanding.

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

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

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

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

                                       26
<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2002 AND 2001 - PREPARED BY MANAGEMENT (UNAUDITED)
--------------------------------------------------------------------------------


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

15.      Acquisitions

         Clean Age Minerals Incorporated

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

         Daleco's 16/6, Inc.

         Effective July 7, 2001, Daleco acquired 16/6, Inc., a software
development firm 16/6 has applied for a patent on its I(2) technology (Patent
Pending No. 09/659641). The I(2) technology covers the ability to extract
certain text documentation from existing published documents from the Internet
and micro-payments thereof.

         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>



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 Company's performance during its first fiscal Quarter
                  ended December 31, 2002, 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 with the Company's operating areas and the
                  demand and pricing, both domestically or internationally, for
                  the Company's timber and industrial minerals impacted on the
                  Company's results. The prior certification of the Company's
                  timber and Patented Process by independent parties also
                  hindered the Company's ability to enter into immediate
                  contracts for the sale of these products.

                                       28
<PAGE>

         For the three month period ending December 31, 2002, total revenues
         increased by $101,991 (38.5%) while operating expenses decreased by
         $38,169 (16.1%) as compared with the same quarter last year. For the
         period the Company recorded a net loss of $580,564 as compared to
         $749,823 last year.

         During the period, the Company commenced mining and processing of
         calcium carbonate on its Oro Grande, New Mexico deposit. At the same
         time, samples of kaolin are being processed in preparation of
         introduction to domestic and international markets. The Company's
         patented engineered CA Series products were successfully tested by
         independent environmental engineers, in remediating hazardous waste
         from industrial plants, while efforts are underway to introduce our
         products to the agricultural sector.

         While the Company has yet to commence commercial marketing of its
         minerals, timber and CA Series remediation products, we believe that
         the recent work and continuous efforts will result in a profitable
         future.

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.

                                       29
<PAGE>

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

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

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

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



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

Item 1.  None

Item 2.  Change in Securities.

         There were no sales of securities by the registrant during the quarter
         ending December 31, 2002. The Company did convert $10,000 of
         indebtedness owed to Mr. Novinskie, President and Chief Operating
         Officer, and $10,000 of indebtedness owed to Mr. Amir, Chairman of the
         Board of Directors and Chief Executive Officer into 143, 884 shares
         (71, 942 to each of Mr. Novinskie and Mr. Amir) as of December 3, 2002.
         Additionally, the Company issued a aggregate of 85, 616 shares of
         common stock to Mr. Novinskie (42, 808) and Mr. Amir (42, 808)
         consistent with their Key Man Agreements dated November 16, 2002.

                                       30
<PAGE>

         On November 27, 2002, Cornell Capital Partners ("CCP") converted
         $10,000 of the $300,000 debenture issued as part of its Equity Line of
         Credit transaction ("Debenture") into 85,470 shares, on December 9,
         2002, CCP converted $40,000 of the Debenture into 366,972 shares and on
         December 30, 2002 CCP converted $25,000 of the Debenture into 318,066
         shares, for a total of 770,508 shares. On July 24, 2002, the Company
         entered into a $10,000,000 equity line of credit with CCP. As part of
         the transaction, the Company issued a $300,000 Debenture to CCP. The
         Debenture issued interest at six percent (6%) per annum and matured in
         two years. CCP had the right to convert the Debenture into Common Stock
         of the Company at a price equal to the lessor of either (a) an amount
         equal to one hundred twenty percent (120%) of the closing bid price of
         the Common Stock on July 24, 2002, or (b) an amount equal to eighty
         percent (80%) of the average of the three (3) lowest Closing Bid Prices
         of the Common Stock for the five (5) trading days immediately preceding
         the date of CCP's conversion of the debenture into Common Stock. All
         common stock issued to CCP was covered by the Company's registration
         statement on Form SB-2 effective November 7, 2002.

         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 December 31, 2002 and 2001, was
         $6,942,138 and $7,017,390, respectively. Interest on the borrowings is
         at prime plus 2%. Principal is paid out of 85% of the net cash flow
         from the properties. Additional interest is payable from 50% of the net
         cash flow from these properties after the payment of principal. In
         January 1999, Heller declared the loan to be in default, as a result of
         the pledged properties failure to generate the required interest
         payments. This was solely attributable to the decrease in the low
         worldwide prices for oil. As a result, the full amount of the Heller
         Loan has been reclassified as current debt. With the recovery of oil
         prices, the Heller Loan has come back into compliance, however, Heller
         has not rescinded its default notice. The obligations to Heller are
         non-recourse to the Company and payable solely out of the oil and
         properties pledged to Heller as collateral.



                                       31
<PAGE>

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.




                                       32
<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 14, 2003           By:   /s/ Gary J. Novinskie
                                          --------------------------------------
                                                   Gary J. Novinskie, President


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

                          DALECO RESOURCES CORPORATION


Date:  February 14, 2003                  /s/ Gary J. Novinskie
                                          --------------------------------------
                                          Gary J. Novinskie
                                          President and Director


Date: February 14, 2003                   /s/ Dov Amir
                                          --------------------------------------
                                          Dov Amir
                                          Chief Executive Officer and Chairman
                                          of the Board of Directors

                                       33

<PAGE>


                                  CERTIFICATION


         I, Gary J. Novinskie, certify that:

         1. I have reviewed this quarterly report on Form 10-QSB of Daleco
Resources Corporation.

         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 14, 2003                  /s/ Gary J. Novinskie
                                          --------------------------------------
                                          Gary J. Novinskie
                                          President and Chief Financial Officer



                                       34

<PAGE>




In connection with the Quarterly Report of Daleco Resources Corporation (the
"Company") on Form 10-QSB for the period ending December 31, 2002 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 14, 2003




                                       35