<PAGE>


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB


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

For the quarterly period ended March 31, 2002
                               --------------

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

For the transition period from __________________ to __________________

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

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

<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 March 31, 2002:
18,953,378

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

Number of shares outstanding of the issuer's Series B preferred stock as of
March 31, 2002: 385,000


<PAGE>


                                      INDEX

                                                                         PAGE
PART I   FINANCIAL INFORMATION

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

ITEM 2            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS..................  23

PART II           OTHER INFORMATION....................................  24

ITEM 2            Sale of Securities...................................  24

ITEM 6            Exhibits and Reports on Form 8-K.....................  26

SIGNATURES        .....................................................  26



<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2002 AND 2001--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>

                                                               2002             2001
                                                           ------------    ------------
ASSETS
Current Assets
<S>                                                        <C>             <C>
         Cash Accounts                                     $    235,893    $    187,262
         C/Ds                                                   375,000          75,000
         Account Receivables                                    772,922         543,684
         Jib Receivables                                           --              --
         Prepaid Mineral Royalties (note 5c)                    409,642            --
         Other Current Assets                                    11,074          11,474
                                    Total Current Assets   $  1,804,531    $    817,420
Other Assets
         Investment in Mining Joint Venture                $      --       $       --
         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)       (550,251)
                  Net Debt Placement Costs                         --            34,564
         Equity Placement Costs                                    --              --
         Accumulated Amortization Equity Costs                     --              --
                  Net Equity Placement                             --              --
         Other Assets                                              --              --
                                                           ------------    ------------
                                    Total Other Assets     $       --      $     34,564
                                                           ============    ============
Fixed Assets
         Oil and Gas Properties (note 3)                   $ 12,607,950    $ 12,607,950
         Accumulated DD&A                                    (5,947,950)     (5,634,496)
                  Net Oil and Gas Property                    6,660,000       6,973,454
         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)       (878,342)
                  Net Timber Property                              --           150,000
         Technology/Patent Rights (note 6)                    7,767,000       7,767,000
         Accumulated DD&A                                    (1,016,553)     (1,350,000)
                  Net Tech./Patent Rights                     6,750,447       6,417,000
         Property, Equipment, Furniture & Fixtures              514,749         485,648
         Accum. Depr (P, E, P & P)                             (467,444)       (140,878)
                  Net (P, E, P & P)                              47,305         344,770
         Leasehold Improvements                                    --              --
         Accu. Amort. (Lease improvements)                         --              --
                  Net Lease Improvements                           --              --
                                                           ------------    ------------

                                   Total Fixed Assets      $ 26,066,852    $ 26,494,324
                                                           ============    ============

                                  Total Assets             $ 27,871,383    $ 27,346,308
                                                           ============    ============

</TABLE>


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                        3
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2002 AND 2001--PREPARED BY MANAGEMENT (UNAUDITED)

<TABLE>
<CAPTION>

                                                                              2002                2001
                                                                         ------------         ------------
LIABILITIES
Current Liabilities
<S>                                                                      <C>                  <C>
         Trade A/P                                                       $    904,590         $  2,319,887
         Notes Payable (note 7)                                               132,543              120,000
         Note Due Related Pty. (note 8)                                       551,946              551,946
         HFI Financing (note 10a)                                           5,154,783            5,154,783
         Loans--1st Regional (note 10d)                                       100,000              100,000
         CAMI Loans (note 7(c))                                               514,881              514,881
         Sonata and Standard Energy Financing (notes 7b and 10b)                 --                307,092
         Accrued Interest Expense (notes 7(c), 8, 10a and 10b)              2,157,463            1,733,416
         Accrued Dividend Expense (notes 11d and 16)                        1,539,122              306,390
         Accrued Expense Reimbursements                                             0               43,454
         Accrued Salary Expense                                               120,595              111,220

                                    Total Current Liabilities            $ 11,175,924         $ 11,263,069
                                                                         ------------         ------------

Long Term Debt                                                           $        --          $        --

                                             Total Long Term Debt        $        --          $        --
                                                                         ------------         ------------

                                    Total Liabilities                    $ 11,175,924         $ 11,263,069
                                                                         ------------         ------------

EQUITY
         Beginning Retained Earnings                                     $(18,894,422)        $(18,123,880)
         Current Period Income/(loss)                                        (848,583)            (342,826)
         Add. Paid in Capital                                              36,244,965           34,495,742
         Preferred Stock (note 11)                                              3,965               20,178
         Common Stock                                                         189,534               34,025

                                    Total Equity                         $ 16,695,459         $ 16,083,239
                                                                         ------------         ------------

                                    Total Liabilities and Equity         $ 27,871,383         $ 27,346,308
                                                                         ============         ============



</TABLE>







                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS



                                       4
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS FOR THE PERIODS
ENDED MARCH 31, 2002 AND 2001--PREPARED BY MANAGEMENT (UNAUDITED)
<TABLE>
<CAPTION>

                                                   Three Months Ended            Six Months Ended
                                                March 31,      March 31,      March 31,      March 31,
                                                  2002            2001          2002           2001
                                               -----------    -----------    -----------    -----------
Revenue
<S>                                            <C>            <C>            <C>            <C>
         O&G Sales                             $   239,656    $   885,340    $   483,351    $ 1,578,836
         N P I Receipts                                  0              0              0              0
         Royalty Receipts                            4,451         10,170          8,530         15,810
         Timber Sales                                    0              0              0              0
         Mineral Sales                                   0              0              0              0
                  Total Operating Income       $   244,107    $   895,510    $   491,881    $ 1,594,646
                                               -----------    -----------    -----------    -----------

         Interest Income                                 0              0              0              0
         Well Management                            17,111         80,686         34,222        194,472
         Ptr. Management                                 0              0              0              0
         Other Income                                    0              0              0              0
                  Total Other Income           $    17,111    $    80,686    $    34,222        194,472
                                               -----------    -----------    -----------    -----------

                  Total Income                 $   261,218    $   976,196    $   526,104    $ 1,789,118
                                               ===========    ===========    ===========    ===========

Expenses
         LOE--Oil and Gas                          106,812        277,603        303,204        549,456
         LOE--Timber                                     0              0              0              0
         LOE--Minerals                                   0              0              0              0
         N P I Exp                                       0              0              0              0
         Prod Tax                                   18,573         38,732         37,640         80,928
         DD&A (Fixed Assets)                       535,484        265,084        819,429        560,809
         Third Party Distributions                   4,026        358,940         36,267        699,016
                  Total Well Expense           $   664,895    $   940,359    $ 1,196,539    $ 1,890,209
                                               -----------    -----------    -----------    -----------

         Interest Expense                          206,320        190,791        390,636        374,948

         General and Administrative Expenses       142,361        106,396        274,873        297,623
         Legal and Professional Fees                84,160         61,047        174,385         61,047
         Financial Advisor Fees                          0              0         30,000              0
         Shareholder Information                    12,064          3,148         17,576          3,148
         Amortization of Debt Costs                      0         17,281              0         34,562
         Amortization of Goodwill                        0              0              0              0
                  Total Expenses               $ 1,109,800    $ 1,319,022    $ 2,084,010    $ 2,661,537
                                               -----------    -----------    -----------    -----------

                  Net Income (Loss)            $  (848,583)   $  (342,826)   $(1,557,906)   $  (872,419)
                                               ===========    ===========    ===========    ===========

Basic and Fully Diluted Net Loss per
Common Share                                   $     (0.04)   $     (0.08)   $     (0.10)   $     (0.26)
                                                     (0.03)         (0.05)         (0.02)         (0.04)
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS



                                       5
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT FOR THE PERIODS
ENDED MARCH 31, 2002 AND 2001--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

                                             2002                    2001

Deficit--Beginning of Period            ($18,405,962)            ($16,754,287)
Net loss for the period                     (848,583)                (872,419)
Dividends on Preferred Stock                (488,460)                (840,000)
                                                                     ---------
Deficit--End of Period                  ($19,743,005)            ($18,466,706)
                                        =============            =============









































                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       6

<PAGE>


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


<TABLE>
<CAPTION>

                                                                                Three Months Ended             Six Months Ended
                                                                             March 31,      March 31,      March 31,     March 31,
                                                                               2002           2001           2002          2001
                                                                           -----------    -----------    -----------    -----------
Operating Activities
<S>                                                                        <C>            <C>            <C>            <C>
Net loss for the period                                                    $  (848,583)   $  (342,826)   $(1,557,906)   $  (872,419)
Items not affecting working capital
         Change in DD&A for period                                             531,267        265,084        788,513        560,809
         Debt Amortization                                                        --           17,281           --           34,562
         Amortization of Good Will                                                --             --             --             --
                                    Subtotal                                   531,267        282,365        788,513        595,371
Items affecting Working Capital:
         (Increase) Decrease in other assets                               $     7,200   $      --    $  (292,800)      $      --
         (Increase) Decrease in Pre-paid Royalties                                --             --             --             --
         (Increase) Decrease in Accounts Receivable                           (389,539)       (41,262)      (461,986)       283,491
         Increase/(Decrease) in Partnership Accrued Distributions             (375,700)          --       (1,035,565)          --
         Increase (Decrease) in Trade Payables                                  (4,855)       692,828       (498,586)       537,866
         Increase (Decrease) in other Accrued Expenses                         (43,454)          --          (34,079)          --
         Gain/(loss) on Sale of Properties                                        --             --             --             --
                                    Subtotal                               $  (806,348)   $   651,566    $(2,323,016)   $   821,357
                                                                           -----------    -----------    -----------    -----------

Cash provided (used) for operating activities                              $(1,123,684)   $   691,105    $(3,092,409)   $   544,309
                                                                           -----------    -----------    -----------    -----------

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

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

Financing Activities
         Increase/(decrease) Notes due Related Parties                     $   (87,543)   $      --      $   (81,543)   $      --
         Increase/(decrease) Other Notes due                                    87,543           --         (261,549)          --
         Increase/(decrease) Accrued Interests                                  15,072        (54,838)       (30,763)       362,244
         Increase/(decrease) Accrued Dividends                                 (72,869)      (420,000)      (162,567)      (840,000)
         Dividends Paid                                                         63,684           --           63,684           --
         Proceeds of Equity Issuance                                              --             --        1,300,000           --
         Proceeds of L/Debt                                                       --             --             --             --
Cash provided from/(used for) financing activities                               6,887       (474,838)   $   827,262       (477,756)
                                                                           -----------    -----------    -----------    -----------
Net Increase/(decrease) in cash for period                                 $(1,117,777)   $   116,267    $(2,265,147)   $    66,553
Cash and Cash Equivalents--Beginning of Period                             $ 1,353,670    $   145,995    $ 2,501,040    $   195,709
                                                                                          -----------    -----------    -----------
Cash and Cash Equivalents--End of Period                                   $   235,893    $   262,262    $   235,893    $   262,262
                                                                           ===========    ===========    ===========    ===========

Change in Cash FY 2nd Qtr                                                  $(1,117,777)   $   116,267    $(2,265,147)   $    66,553
                                                                           ===========    ===========    ===========    ===========
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       7
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 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. As of
         March 31, 2002, the Company has reported a loss of $848,583. The
         ability of the Company to meet its total liabilities of $11,175,924 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.

         As of March 31, 2002, certain of the Company's subsidiaries were in
         default of certain debt 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.

         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., Haly
                  Corp., 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.

                                       8
<PAGE>

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

                  Costs of exploratory wells found to be dry during the year on
                  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.

         d.       Site restoration, dismantlement and abandonment costs

                  The salvage value of producing wells 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.

         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.


                                       9
<PAGE>

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

         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 as of December 31, 1998, represent those
                  associated with the Heller Financial, Inc. loan (see Note 10)
                  and are being amortized over a period of five years. As of
                  March 31, 2002, all debt issuance costs have been fully
                  amortized.

         i.       Cash and Cash Equivalents

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

         j.       Fair Value of Financial Instruments

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

         k.       Reverse Stock Split

                  Effective February 24, 1998, the majority of stockholders of
                  the Company approved a reverse ten-for-one stock split. The
                  effect of the reverse stock split has been retroactively
                  reflected in these financial statements. All references to the
                  number of common and preferred shares, stock options,
                  warrants, and per share amounts elsewhere in these financial
                  statements and related footnotes have been restated as
                  appropriate to reflect the effect of the reverse split for all
                  periods presented.

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

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

<S>                                                               <C>           <C>
Proven lease acreage costs                                        $ 5,429,996   $ 5,429,996
Proven undeveloped lease acreage costs                              1,745,810     1,745,810
Well costs                                                          5,432,145     5,432,145
                                                                  -----------   -----------
                                                                  $12,607,950   $12,607,950

Accumulated depletion, depreciation and amortization                5,947,950     5,634,496
                                                                  -----------   -----------
                                                                  $ 6,660,000   $ 6,973,454
</TABLE>




                                       10
<PAGE>

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

         (a)      Sale of Oil and Gas Properties

                  $878,685 in cash was received from the sale of the Company's
                  coalbed methane properties in Alabama in December 1999 (First
                  Quarter of Fiscal 2000). The Company reported the depreciation
                  of these properties in its audited financial statements for
                  the fiscal year ending September 30, 1999, but could not
                  report the income until the net amounts were actually received
                  during fiscal year 2000.

                  DD&A for FY 00 included adjustments for the divestment of
                  certain of the Company's interests/wells located in Kansas and
                  Oklahoma.

                  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.

 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 September 30, 2001.

         The Company has maintained its concession rights since the inception of
         timber operations in 1997. (see Note 10).

 5.      Mineral Properties

         a.       Clean Age Minerals, Incorporated. In September 2000, the
                  Company acquired Clean Age Minerals, Inc. ("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").


                                       11
<PAGE>

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

                  CAP owns or has under long-term lease: (a) 5,200 acres(+/-) in
                  Marfa, Presidio County, Texas, containing high grade zeolite;
                  (b) 5,020 acres(+/-) of calcium carbonate deposits located in
                  the Oro Grande area, Cibola County, New Mexico; (c) five (5)
                  mining claims located in Sierra County, New Mexico covering
                  800 acres(+/-) of kaolin; (d) seventeen (17) mining claims
                  covering 1,360 acres(+/-) in Grant County, New Mexico
                  containing perlite; and (e) eleven (11) zeolite mining claims
                  covering approximately 220 acres(+/-) located in Beaver
                  County, Utah.

         b.       Minerals and Equipment
                                                      2002              2001
         Proven undeveloped lease costs           $12,609,100       $12,609,100
         Mine development costs                             0                 0
         Accumulated depletion and                          0                 0
         Depreciation
                                                  $12,609,100       $12,609,100
                                                  -----------       -----------

         c.       Prepaid Royalties.

                  The Company received 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.

 6.      Patents & Technology

         As part of the acquisition of Clean Age Minerals, Inc. ("CAMI") (See
         Note 6(a) above), the Company also acquired U.S. Patent No: 5387738.
         This patent, formerly owned by Matrix-Loc, Inc. deals with a reagent
         and process for the remediation of water and contaminated soils. On
         March 18, 2002, Matrix-Loc, Inc. was merged with and into CAMI, with
         CAMI being the surviving entity.

 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
                  and purchased his, or 8,000 shares of the Series A Preferred
                  Stock. 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 dividends.
                  (See Litigation Note 14). Mr. Amir has not made a demand on
                  the Company for payment.


                                       12
<PAGE>

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

         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 Noteholders 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 August 1, 2001, the Company
                  borrowed $42,000 from Standard Energy Company. This loan
                  earned interest at 2% per annum. The Standard Energy Company
                  loan was satisfied on November 30, 2001.

         c.       Pursuant to Paragraph 5.1 of the Agreement and Plan of Merger
                  by and among Clean Age Minerals, Incorporated ("CAMI") and
                  Strategic Minerals, Inc. ("SMI") and the Company dated
                  September 19, 2000, obligations of CAMI to certain officers,
                  directors and third parties were to have been satisfied by SMI
                  or the Company within one (1) year of the merger. The
                  indebtedness totaled (including the Martin Debt as defined in
                  Note 8(b) below) $514,881 and was evidenced by Notes dated
                  September 19, 2000. The Notes were due and payable on or
                  before September 18, 2001 and provide for interest at the rate
                  of 8% per annum. These Notes remain outstanding. As of March
                  31, 2002, the total amount payable on these notes is $576,681
                  representing principal of $514,881 and accrued but unpaid
                  interest of $61,800.


8.       Due to (from) Related Parties
                                                              2002       2001
                                                              ----       ----
         (a)      Net due (from) to Amir
                           Bearing interest at prime +3%   $91,062    $91,062
                           Bearing interest at 7%          460,884    460,884
                                                          $551,946   $551,946

         Mr. Amir is an officer and shareholder of the Company. These amounts
         have no fixed repayment terms.

         (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
                  March 31, 2002, the Martin Debt amounts to $150,897
                  representing $134,811 in principal and $16,086 in accrued but
                  unpaid interest. The Martin Debt is evidenced by a Note
                  providing for an annual rate of interest of 8%.

 9.      Debentures

                                                      2002             2001
                                                      ----             ----

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

         a.       7% Convertible Debentures

                  On May 31, 1996 the Company issued $1,000,000 of 7%
                  convertible debentures with interest payable in cash or stock
                  on a semi-annual basis, and a term of three years. The
                  placement agent's fees were 10% of the gross proceeds and
                  10,000 warrants at $10.00, with an expiration date of May 30,
                  2001 (see Note 12). The debentures could be converted after a
                  holding period of: (a) as to 50% of the principal amount, 40
                  days (July 10, 1996), and (b) the remaining 50%, 60 days (July
                  30, 1996). The debentures are convertible into the Company's
                  Common Stock at the lessor of (1) a 35% discount on the
                  previous five day average closing bid price at conversion, or;
                  (2) the previous day average closing bid price at closing (May
                  31, 1996). As of December 31, 1996, $600,000 of the 7%
                  debentures had been converted into 107,712 common shares. The
                  remaining balance was converted into 132,916 common shares
                  during 1997.


                                       13
<PAGE>

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

         b.       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 September 30, 2000,
                  $1,280,000 of the 8% debentures had been converted into
                  981,322 common shares.

 10.     Long-Term Debt

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

         a.       Heller Financial, Inc.

                  During the forth quarter of fiscal 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 F. The amount outstanding
                  (principle and accrued interest) under this arrangement as of
                  December 31, 2001 and 2000 , was $7,017,390 and $6,945,150,
                  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.


                                       14
<PAGE>

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

         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). The full amount of this loan had been
                  reclassified as current debt. 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 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.

         c.       PNC Bank Loan

                  During the fourth quarter of fiscal 1998, Deven Resources,
                  Inc. obtained a term loan of $300,000 with interest at prime
                  plus 12%. Principal is due at $25,000 per quarter. The loan
                  was secured by specific properties owned by Deven. This loan
                  was paid off on December 15, 1999 through the sale of Deven's
                  Net Profits interests in certain properties in Armstrong and
                  Fayette Counties, Pennsylvania.

         d.       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, 2002.
                  The loan is secured by personal assets of an officer of the
                  Company.



                                       15
<PAGE>

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


 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>
Authorized                                              50,000,000

Balance as of March 31, 2001                             3,102,574                    16,000           2,018,000

Issued pursuant to the Terra Silex                        817,728
Agreement
Issued for the acquisition of 1616th                     1,000,000
Issued for development of Natural
Resource Exchange                                          300,000
Issuance to Kanes                                           50,000
Issuance to SCOA                                           640,000
Issuance on conversion of Series A
Preferred Stock                                            408,163
Issuance on the conversion of
Series B Preferred                                     12,63.4,913

Balance as of March 31, 2002                            18,953,378                     8,000             385,000
</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, par value $0.01.




                                       16
<PAGE>

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


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

                  Canceled                                  0        (125,000)
                                                                      --------

                  Granted                                   0        2,500,000
                                                                     ---------

                  Exercised                                 0              --

                  Outstanding and Exercisable
                   at end of period                 6,110,000        6,110,000
                                                                     ---------

                  On November 16, 2001, the Company entered into key man
                  employment agreements 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 and
                  President of Strategic Minerals, Inc. 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 is 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 the average closing price for the
                  common stock at the close of business for the five trading
                  days immediately preceding June 30, 2002.

                  On September 11, 2000 the Board of Directors of the Company
                  granted options to three directors (Messrs., Amir, Novinskie
                  and Trainor), two of whom are also officers of the Company and
                  two employees. The options are exercisable at a price of $.25
                  per share which was 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 by persons who were
                  either not being paid currently and/or continued to work for
                  the benefit of the Company and the shareholders at a wage
                  scale substantially below market. The following summary sets
                  out the activity in Common Stock purchase options:

                  In January 1995, the Company granted fully vested Common Stock
                  purchase options expiring on January 6, 2000 for 85,000 common
                  shares at $2.50 per share. On the same date, the Common Stock
                  purchase options previously outstanding, which expired on
                  September 5, 1995 for 35,670 common shares at $3.20 per share,
                  were gifted back to the Company and canceled.

                  In October 1995, the Financial Accounting Standards Board
                  issued Statement of Financial Accounting Standards No. 123,
                  Accounting for Stock-Based Compensation, (SFAS 123). SFAS 123
                  permits the Company's continued use of the intrinsic value
                  based method prescribed by Accounting Principles Board Opinion
                  No. 25 (APB 25). SFAS 123 requires additional disclosures,
                  including pro forma calculations of net earnings and earnings
                  per share, as if the fair value method of accounting
                  prescribed by SFAS 123 had been applied. The fair value of
                  stock options and compensation cost are measured at the date
                  of grant.


                                       17
<PAGE>

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

                  The Common Stock purchase options were issued for past
                  services at an exercise price of $2.50 per share when the
                  underlying stock was at $2.245 per share. Had compensation
                  cost been determined based on the fair value of the Common
                  Stock purchase options using the provisions of SFAS 123, the
                  Company's net loss and loss per share in 1995 would have
                  increased by $161,500 and $0.10, respectively.

                  For the pro forma calculation, the fair value of each option
                  on the date of grant was estimated using the Black-Scholes
                  option pricing model and the following assumptions for awards
                  in 1995: zero dividend yield expected volatility of 119.64%,
                  risk -free interest rate of 7.84%, and expected life of 5
                  years. Using these assumptions, the grant-date fair value per
                  share of the options granted in 1995 was $1.80.

         b.       Common Stock Warrants

                  Common Stock warrants outstanding at March 31, 2002, consist
of the following:
<TABLE>
<CAPTION>

                                                                                           Price Per
     Issuance                       Expiration Date                 Amount                   Share
     --------                       ---------------                 ------                   -----
<S>                                       <C>                       <C>                     <C>
8% Debenture Holders                 June 8, 2002                   65,500                  $10.81
and Placement Agents (1)
Financing Sources (2.)             August 1, 2002 to                                       $0.55 to
                                   November 20, 2005                288,138                  $2.50

Terra Silex Warrant                December 31, 2006                250,000                  $1.25

SCOA Warrants                      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.

                           With respect to the warrants granted to the debenture
                           holders and subagents, the warrants were granted in
                           three equal installments of September 11, 1996;
                           November 26, 1996; and June 8, 1997. These warrants
                           will expire five years from the date of each
                           installment: September 11, 2001; November 26, 2001;
                           and June 8, 2002. The number of shares of Common
                           Stock into which the warrants may be converted and
                           the exercise price of the warrants were determined by
                           (among other variables and future events) the amount
                           of debentures still outstanding on each date of
                           grant, and the average closing bid price of the
                           Company's Common Stock for the five trading days
                           immediately preceding each date of grant.


                                       18
<PAGE>

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

                           On September 11, 1996, a total of 12,211 warrants
                           expiring on September 11, 2001 were granted to the
                           agents. The warrants may be exercised at any time
                           before the expiration date by either of the two
                           methods as follows: (1) each warrant may be exercised
                           for one common share with an exercise price of
                           $10.73, or (2) all or a portion of the warrants may
                           be exercised on a cashless basis where a reduced
                           number of shares of Common Stock will be issued based
                           upon the difference between the average closing price
                           of the Company's Common Stock for the five business
                           days immediately preceding the date of exercise and
                           the exercise price, divided by the average closing
                           market price, times the number of warrants being
                           exercised.

                  (2)      Common Stock Warrants Attached to Notes

                           On July 21, 1998, a total of 218,183 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.

         c.       Net Income Per Share. Net income per share was calculated on
                  the basis of the weighted average number of shares outstanding
                  which amounted to 18,953,378 for the period ended March 31,
                  2002 (2001 -- 3,402,574). For the periods ending March 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.

         d.       Payment of Accrued Dividends.

                  $417,360 of accrued dividends attributable to the 8%
                  Cumulative Convertible Preferred Stock issued in the
                  acquisition of CAMI ("CAMI Preferred") was paid in 332,467
                  shares of Common Stock upon conversion of 1,198,800 shares of
                  the CAMI Preferred Stock to Common Stock commencing October,
                  2001 through December 31, 2001. See also Note 16, regarding
                  payment of $90,000 in accrued dividends on the Series A
                  Preferred Stock held by the Kanes in December 2001.

 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 $28 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
                  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.


                                       19
<PAGE>

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

         b.       On November 16, 2001, the Company entered into a Stock
                  Purchase Agreement with SCOA ("SCOA SPA"). As a condition to
                  the closing of the SCOA SPA, SCOA required that the Company
                  enter into Key Man Employment Contracts ("Key Man Contracts")
                  with Messrs. Robert E. Martin, Gary J. Novinskie and Dov Amir.
                  The Key Man Contracts are for an initial three (3) year term.
                  The Key Man Contracts provide for acceleration of the vesting
                  of incentive warrants 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.)

 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 Judgement 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. aI. commenced an action in the
                  Superior Court, Los Angeles, California to enforce their right
                  to have the Company repurchase 16,000 shares (stated value
                  $50,000 purchase) of Series A, 10% Cumulative Preferred Stock.
                  The Plaintiffs had the right to put the stock to the Company
                  on August 20, 1999, which they did. Although the Company
                  continued to pay quarterly interest on the Series A Preferred
                  Stock, it did not redeem the shares 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.


                                       20
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 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 interest 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. No further dividend payments are due until
                  the end of January 2002.

                  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.

                  We believe that neither DEP non DRI would have any liability
                  arising out of this cause of action.

 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
         $.0I, 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 Stan 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.




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<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 on 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 on 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 March 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.

                  During the quarter ending March 31, 2002, the Company's sale
                  of securities, and proceeds from the sale of assets provided
                  its main source of revenues.


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<PAGE>


                  With the cooperation and lead of SCOA, in accordance with the
                  provisions of the Master Distribution and Marketing Agreement,
                  contacts are being negotiated with academic institutions to
                  certify the results of CAM l's Patented Processes and to work
                  with industrial partners to establish test sites at which the
                  efficacy of the Patented Processes can be verified.

                  The Company has also, through its arrangements with SCOA
                  ,entered into discussions with potential users of the
                  Company's timber products for railroad ties and utility poles.
                  During the quarter, the Company focused on the implementation
                  of it's the Master Distribution and Marketing Agreement with
                  SCOA. Key areas were the identification of potential market
                  outlets for the Clean Ages' industrial minerals and
                  environmental technology.

PART II.          OTHER INFORMATION

Item 2.  Sale of Securities.

         Terra Silex Agreement:
         ---------------------

         On September 20, 2001, the Company entered into a Stock Purchase
         Agreement with Terra Silex Holdings, LLC ("Terra Silex") ("Terra Silex
         Agreement") pursuant to which the Company agreed to sell Terra Silex up
         to 1,800,000 shares of Common Stock at a price of $1.25 per share. At
         the time of the Terra Silex Agreement, the market price of the
         Company's Common Stock was $1.05.

         The Terra Silex Agreement provided for the purchase of the Common Stock
         in three (3) tranches. At closing, Terra Silex acquired 400,00 shares.
         The second tranche was to close within sixty (60) days, subject to
         Terra Silex's satisfactory completion of its due diligence. The second
         tranche for 400,000 shares closed on November 20, 2001. The third
         tranche for 1,000,000 shares was to have closed sixty (60) days after
         the second tranche closing, subject to Terra Silex's continued
         satisfactory due diligence. Terra Silex requested and was granted an
         extension until February 15, 2002 in which to exercise the third
         tranche. Terra Silex was also granted a warrant for 500,000 shares
         ("Terra Silex Warrant"). The term of the warrant for five (5) years at
         an exercise price of $1.25 and is pro rated in amount should Terra
         Silex not fund all three tranches. On February 15, 2002, Terra Silex
         failed to exercise the third tranche. As such, Terra Silex's right to
         purchase additional shares under this Terra Silex Agreement terminated.
         The Terra Silex Warrant is only vested as to 250,000 shares with the
         remaining 250,000 shares of the Terra Silex Warrant having been
         forfeited as a result of Terra Silex's failure to fund the third
         tranche.

         SCOA SPA:
         --------

         Effective, November 16, 2001, the Company entered into a Stock Purchase
         Agreement with Sumitomo Corporation of America ("SCOA") ("SCOA SPA").
         The SCOA SPA provided for the purchase of 640,000 shares of Company
         Common Stock at a price of $1.25 pen share. The SCOA SPA also granted
         SCOA 1,700,000 warrants, 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 SCOA SPA provides for SCOA to nominate one person to serve as a
         director of the Company and also to have an "observer" present at the
         meetings of the Board of Directors. At such time as SCOA has acquired
         at least 1,500,000 shares under the SPA through the exercise of its
         warrants plus the additional acquisition (640,000 original purchase
         shares plus 860,000 warrant shares) the observer shall be nominated to
         serve as a director of the Company.



                                       23
<PAGE>

         Also on November 16, 2001, the Company entered into a Master
         Distribution and Marketing Agreement ("Marketing Agreement") with SCOA.
         Under the Marketing Agreement, SCOA received 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.

         CHANGE OF STATE OF INCORPORATION:
         --------------------------------

         The Shareholders at the Company's Annual Meeting on February 28, 2002,
         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
         20,000 shares of common stock and 20,000 shares of preferred shares.
         The Bylaws of Old Daleco became the Bylaws of New Daleco, as amended to
         reflect the laws of the State of Nevada. The Board of Directors of Old
         Daleco elected at the Annual Meeting of Shareholders on February 28,
         2002 became the Board of Directors of New Daleco. The Officers of Old
         Daleco were appointed as the Officers of New Daleco. Under the Articles
         of Merger filed with the Secretary of State of Nevada, the name of New
         Daleco was changed to Daleco Resources Corporation.

         CONSOLIDATION OF SUBSIDIARIES

         The Company consolidated the subsidiaries of Strategic Minerals, Inc.
         by merging Lone Star Properties, Inc., a Nevada corporation with and
         into its parent, CA Properties, Inc. Lone Star Properties, Inc. owned
         one asset and that was a fee and leasehold interest in zeolite deposits
         in Marfa, Texas. As a result of this merger, all of the Company's fee
         and leasehold interests of non-nutation minerals are held in one
         company, CA Properties, Inc.

         The Company also merged Matrix-Loc, Inc., a Texas corporation, with and
         into Strategic Minerals, Inc., a Nevada corporation. The only asset of
         Matrix-Loc was the Company's Patent, U.S. Patent No: 5.387.738. As a
         result of the merger, the Company had eliminated the need to maintain a
         Texas corporation, the only subsidiary the Company owned that was
         incorporated in Texas, thus reducing the costs associated with
         maintaining corporations incorporated in multiple jurisdictions.

         Finally, the Company caused the name of Strategic Minerals, Inc. to
         Clean Age Minerals, Inc. Since Strategic Minerals, Inc. was operating
         under the name of Clean Age Minerals, Inc. due to its name recognition,
         the Company felt it more prudent to change the name of Strategic
         Minerals, Inc. to Clean Age Minerals, Inc. to avoid possible confusion
         and to simplify recognition in the market place.




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<PAGE>




ITEM 6   Exhibits and Reports on Form 8-K

         8-K dated April 10, 2002 and filed on April 11, 2002.

                                   SIGNATURES

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

                                          DALECO RESOURCES CORPORATION


Date:  May  15, 2002                      /s/ Gary J. Novinskie
                                          -------------------------------------
                                          Gary J. Novinskie
                                          President


Date:  May  15, 2002                      /s/ Dov Amir
                                          -------------------------------------
                                          Dov Amir
                                          Chief Executive Officer







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