<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, 1997
                               --------------

( )   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


Delaware                                    23-2860739
----------------------------------------   ------------------------------------
(State or other jurisdiction               (IRS Employer Identification Number) 
of incorporation or organization)                                     


435 Devon Park Drive, Suite 410
Wayne, Pennsylvania 19087                  (610) 254-4189
----------------------------------------   ------------------------------------
(Address of Principal Executive Offices)   (Issuer's telephone number)
                                           

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution under a
plan confirmed by court.  Yes ___ No ___


                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date.

26,490,588 shares of common stock as of May 1, 1997
<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                       PAGE
<S>                                                                                                    <C>
PART I    FINANCIAL INFORMATION

ITEM 1    FINANCIAL STATEMENTS (Unaudited).............................................................  1
          Consolidated Balance Sheets..................................................................  1
          Consolidated Statement Of Income.............................................................  2
          Consolidated Statement Of Deficit............................................................  3
          Consolidated Statement Of Cash Flow..........................................................  4

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................................  5

       1. Reference To Audited Financial Statements....................................................  5
       2. Summary of Significant Accounting Policies...................................................  5
       3. Investment In And Advances To Mining Joint Venture...........................................  7
       4. Oil and Gas Properties and Equipment.........................................................  7
       5. Timber Rights Acquisition....................................................................  8
       6. Mineral Properties...........................................................................  8
       7. Note Payable.................................................................................  8
       8. Due to (from) Related Parties................................................................  9
       9. Related Party Transactions...................................................................  9
      10. Debentures................................................................................... 10
      11. Capital Stock................................................................................ 11
      12. Income Taxes................................................................................. 13
      13. Segmented Information........................................................................ 13
      14. Acquisition of Deven Resources Corporation................................................... 14
      15. Commitment................................................................................... 14
      16. Acquisition of Oil and Gas Properties from Reserve Production Inc. Liquidating Trust......... 14

ITEM 2    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 16
       A. Completion of the acquisition of Deven Resources, Inc........................................ 16
       B. Acquisition of Oil and Gas Properties from Reserve Production Inc. Liquidating Trust......... 17
          1.  Timber Rights............................................................................ 17
          2.  Settlements.............................................................................. 18

ITEM 4    SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS........................................... 18

ITEM 5    OTHER INFORMATION............................................................................ 19

ITEM 6    EXHIBITS AND REPORTS ON FORM 8-K............................................................. 19

SIGNATURES............................................................................................. 19
</TABLE>
<PAGE>

                          DALECO RESOURCES CORPORATION
                          CONSOLIDATED BALANCE SHEET AS
                           OF MARCH 31, 1997 AND 1996
                       Prepared by Management (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Unaudited              Unaudited
                                                                               March 31, 1997         March 31, 1996
                                                                               --------------         --------------
<S>                                                                             <C>                    <C>
                                      ASSET

CURRENT ASSETS

Cash                                                                            $     80,484            $     57,073

Receivables                                                                           73,805                 784,367

Costs Associated With Acquisition of Oil and Gas Properties                          547,759
From Reserve Production, Inc., Liquidating Trust (Note 16)

Other Current Assets                                                                  87,248                    --
                                                                                ------------            ------------

                                                                                     789,296                 841,440

Investments in and Advances to Mining Joint Venture (Note 3)                          50,000                 300,000

Oil and Gas Properties and Equipment (Note 4)                                      5,230,227               3,512,663

Property and Equipment                                                                75,415                    --

Timber Rights (Note 5)                                                             1,028,342               1,028,342

Mineral Properties (Note 6)                                                           15,673                  15,487

Goodwill (Note 14)                                                                 1,041,668                    --

Debenture Issue costs (Note 10)                                                       10,632                    --
                                                                                ------------            ------------

TOTAL ASSETS                                                                    $  8,241,253            $  5,697,932
                                                                                ============            ============

                                   LIABILITIES

CURRENT LIABILITIES

Accounts Payable and Accrued Liabilities                                        $  2,018,356            $  1,048,836

Notes Payable (Note 7)                                                               688,000               1,100,000

Drilling Deposits                                                                     29,000                  29,000
                                                                                ------------            ------------

                                                                                   2,735,356               2,177,836

Amounts Due to Related Parties (Note 8)                                              566,593                 311,661

Debentures (Note 10)                                                                  90,000                    --
                                                                                ------------            ------------

                                                                                   3,291,949               2,489,497

                              SHAREHOLDERS' EQUITY

CAPITAL STOCK

Issued common shares (Note 11)                                                    12,788,225               8,360,126

Accumulated Deficit                                                               (7,938,921)             (5,151,691)
                                                                                ------------            ------------

Total Shareholders' Equity                                                         4,849,304               3,208,435
                                                                                ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      $  8,241,253            $  5,697,932
                                                                                ============            ============
</TABLE>

See Accompanying Notes.
                                        1
<PAGE>

                          DALECO RESOURCES CORPORATION
                     CONSOLIDATED INCOME STATEMENTS FOR THE
                     PERIODS ENDING MARCH 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED                        SIX MONTHS ENDED

                                                    MARCH 31,          MARCH 31,            MARCH 31,            MARCH 31,
GROSS OPERATING REVENUE                               1997               1996                 1997                 1996
                                                ---------------    -----------------    ----------------       -------------
<S>                                              <C>                  <C>                  <C>                  <C>        
Oil and Gas Sales                                $   722,462          $   305,751          $ 1,249,919          $   498,407

Less: Operating Expenses (Note 4)                    529,259               80,691              946,981              169,271

Severance Taxes                                        5,962                7,967               18,852               11,574

Depletion, Depreciation and Amortization             102,500               58,199              194,634              128,094
                                                 -----------          -----------          -----------          -----------

NET OPERATING REVENUE                                 84,741              158,894               89,452              189,468

Management and Administrative Fee                    127,555                 --                249,466                 --
Revenues

Gain on Litigation Settlement                           --                 (7,656)                --                769,162

Administration Expense                              (294,619)            (222,479)            (812,470)            (345,327)

Amortization of Debenture Issue Costs                (15,000)                --                (32,233)                --

Financial Advisors Expenses                         (135,178)                --               (228,829)                --

Timber Operating Costs                               (93,175)                --               (182,520)                --

Amortization of Goodwill                            (104,166)                --               (208,332)                --

Write-Down of Advances to Mining Joint               (50,000)                --                (50,000)                --
Venture

Interest  Expense                                    (47,081)             (32,083)             (91,350)             (66,698)

TOTAL                                               (611,664)            (246,906)          (1,356,268)             357,137
                                                 -----------          -----------          -----------          -----------

NET INCOME (LOSS)                                $  (526,923)         $  (103,324)         $(1,266,816)         $   546,605
                                                 -----------          -----------          -----------          ===========

PRIMARY AND FULLY DILUTED NET                    $     (0.02)         $     (0.01)         $     (0.06)         $      0.04
INCOME (LOSS) PER COMMON SHARE                   ===========          ===========          ===========          ===========
</TABLE>

See Accompanying Notes.
                                        2
<PAGE>

                          DALECO RESOURCES CORPORATION
                    CONSOLIDATED STATEMENT OF DEFICIT FOR THE
                    SIX MONTHS ENDED MARCH 31, 1997 AND 1996
                       Prepared by Management (Unaudited)

<TABLE>
<CAPTION>
                                      Unaudited               Unaudited
                                    March 31, 1997          March 31, 1996
                                    --------------          --------------
<S>                                  <C>                      <C>        
BALANCE - BEGINNING OF               $(6,672,105)             (5,698,296)
PERIOD

NET INCOME (LOSS) FOR THE             (1,266,816)                546,605
                                     -----------             -----------
PERIOD

BALANCE - END OF PERIOD              $(7,938,921)            $(5,151,691)
                                     ===========             ===========
</TABLE>

See Accompanying Notes.














                                        3
<PAGE>

                          DALECO RESOURCES CORPORATION
                       CONSOLIDATED STATEMENT OF CASH FLOW
                  FOR THE PERIODS ENDED MARCH 31, 1997 AND 1996
                       Prepared by Management (Unaudited)

<TABLE>
<CAPTION>
                                                                Three Months Ended                 Six Months Ended

                                                             March 31,         March 31,        March 31,          March 31,
OPERATING ACTIVITIES                                           1997              1996             1997               1996
                                                          --------------    -------------     -------------     -------------
<S>                                                        <C>               <C>               <C>               <C>        
Net Income (Loss)                                          $  (526,923)      $  (103,324)      $(1,266,816)      $   546,605

Items not affecting Working Capital -

Depreciation, Depletion and Amortization and Write-             60,066            58,199           152,500           128,094
Downs

Resale of Wells                                                   --             (71,468)             --             (71,468)
                                                           -----------       -----------       -----------       -----------

                                                              (466,857)         (116,593)       (1,114,316)          603,231

(Increase) Decrease in Other Assets                           (291,719)             --            (629,943)             --

(Increase) Decrease in Receivables                             885,310          (655,956)          797,325           (33,488)

Increase (Decrease) in Accounts Payable                       (185,641)          (52,946)          708,508        (1,164,036)

Drilling and Workover Costs                                       --              (8,456)             --             (19,845)

Proceeds of Drilling Program                                      --                                  --             525,500
                                                           -----------       -----------       -----------       -----------

Cash provided from/(used for) Operations                       (58,907)         (833,951)         (238,426)          (88,638)
                                                           -----------       -----------       -----------       -----------

INVESTING ACTIVITIES

Leasing Acquisition and Well Costs incurred                       --              (3,826)         (124,406)           (6,751)

Lease Acquisition and Well costs surrendered                      --              79,125              --            (109,481)
                                                           -----------       -----------       -----------       -----------

Cash provided from/(used for) Investing Activities                --              75,299          (124,406)         (116,232)
                                                           -----------       -----------       -----------       -----------

FINANCING ACTIVITIES

Increase (Decrease) in amounts due to Related Parties           61,500            87,696           175,131           181,931
                                                           -----------       -----------       -----------       -----------

NET INCREASE (DECREASE) IN CASH                                  2,593          (670,956)         (187,701)          (22,939)

CASH - BEGINNING OF PERIOD                                      77,891           728,029           268,185            80,012
                                                           -----------       -----------       -----------       -----------

CASH - END OF PERIOD                                       $    80,484       $    57,073       $    80,484       $    57,073
                                                           ===========       ===========       ===========       ===========
</TABLE>

See Accompanying Notes.
                                        4
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

1.    Reference To Audited Financial Statements. These Financial Statements
      should be read in conjunction with the Notes to the Company's Audited
      Financial Statements as of September 30, 1996.

2.    Summary of Significant Accounting Policies.

   a.    Use of Estimates.

         The preparation of financial statements in conformity with general
         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.

         These 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
         ("Westlands"), Sustainable Forest Industries, Inc. (Sustainable), and
         Deven Resources, Inc.("Deven"). 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.

   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. Cost of
         undeveloped leases on which proved reserves are found are transferred
         to proven oil and gas properties. Each undeveloped lease with
         significant acquisition costs 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
         undiscounted future net revenues from proven reserves less operating
         and production expenses.

                                        5
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

   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.

   e.    Investment in Minera La Yesca.

         The investment in Minera La Yesca (the "Venture") is recorded at costs
         less certain impairment provisions. At each balance sheet date the
         estimated net recoverable value of the investment is calculated based
         upon the underlying assets of the Venture.

   f.    Mineral Properties.

         The Company has recorded the acquisition of mineral claims at cost.
         These costs along with any future exploration and developments costs
         relating to mineral properties are deferred until the properties are
         brought into production, at which time they are amortized on a unit of
         production basis, or until the properties are abandoned or sold or
         management determines that the mineral property is not economically
         viable, at which time the deferred costs are written off.

   g.    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 undiscounted future
         net revenues from sale of timber less operating and production
         expenses.

   h.    Cash and Cash Equivalent.

         Cash and cash equivalent includes cash and investments with original
         maturities of three months or less.

   i.    Goodwill.

         Goodwill related to the acquisition of the assets of Deven will be
         amortized over a period of three years.

   j.    Property and Equipment.

         Property and Equipment are recorded at cost and will be depreciated
         over a period of five years.

                                        6
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

3.    Investment In And Advances To Mining Joint Venture.

      The Company participated in an agreement dated March 12, 1980, (revised
      October 18, 1980) to purchase 25% of the issued shares of Minera La Yesca,
      a Mexican mining corporation. Funds were advanced to Minera La Yesca to
      help finance the costs of placing the Pinabete Silver Mine (the "mine") in
      Mexico into production. The investment in and advances to Minera La Yesca
      have been recorded at cost. Due to operating losses, resulting from the
      continuing low price of silver, the mine was taken out of production
      during 1990.

      The investment in the advances to Minera La Yesca, which were recorded at
      cost, have been written down to approximate their net recoverable value
      based on the value of equipment owned by Minera La Yesca.

4.    Oil and Gas Properties and Equipment.


                                                   1997               1996
                                                ----------        ---------- 
      Proven lease acreage cost                 $3,756,637        $2,370,838
      Proven undeveloped lease acreage
       cost                                      1,906,220         2,065,084
      Well costs                                 1,636,803         1,009,739
                                                ----------        ----------
                                                 7,299,660         5,445,661
      Accumulated depletion,
       depreciation and amortization             2,074,887         1,938,452
                                                ----------        ----------
                                                 5,224,773         3,507,209
                                                ----------        ----------
      Other equipment                                6,060             6,060
      Accumulated depreciation                         606               606
                                                ----------        ----------
                                                     5,454             5,454
                                                ----------        ----------
                                                $5,230,227        $3,512,663
                                                ==========        ==========


      Westlands has carried interests in producing oil wells which have been
      acquired at no cost and are not included on the balance sheet.

      During the years ended September 30, 1996 and 1995, Westlands farmed out a
      portion of its undeveloped gas acreage in Brazos County, Texas, to a
      non-affiliated entity. The farmee has drilled two successful horizontal
      wells on such acreage in which the Company was carried for a free 5%
      Working Interest. The farmee has the right to drill another 794 acre tract
      for a consideration of $158,864. The undeveloped lease costs were reduced
      by this amount.

      Operating expenses include the lease operating expenses for and the net
      profits interests paid to a partnership sponsored by Deven Resources, Inc.
      This amounted to $664,597 for the six months ended March 31, 1997.


                                        7
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

5.    Timber Rights Acquisition.

      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 issued 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.

      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
      1,500,000 common shares of Daleco given up to acquire Sustainable. The
      fair value of the net liabilities of Sustainable acquired is $65,842
      resulting in consideration of approximately $1,028,500 which has been
      recorded as timber rights.

      Under the terms of the Company's acquisition of Sustainable, the Company
      was obligated to contributed up to $750,000 to support the operation of
      Sustainable. As of December 31, 1996, this condition has been partially
      met. The Company has entered into new agreements with Oreu for the funding
      of the harvesting of the timber concessions. Due to excess sawmill
      capacity in Guyana, the Company has decided not to build a sawmill at this
      time and will use such excess capacity in its operations.

      During the quarter ended March 31, 1997 the Company entered into
      negotiations with an external funder to provide financing for
      Sustainable's Guyana operations. Under the terms of the terms of the
      proposed agreement, an initial tranche of $250,000 will be provided in the
      form of a participatory loan bearing interest at 12% and payable out of
      the net operating cash flow of Sustainable. It is anticipated that the
      funding will be in place during the company's third fiscal quarter.

6.    Mineral Properties.

      In February, 1995, the Company acquired 109 mining claims from
      shareholders of the Company for $15,487 representing their cost to acquire
      the claims. These claims adjoin properties owned by Regent Ventures, Ltd.
      ("Regent"). Effective February 28, 1995, the Company entered into an
      option joint venture agreement with Regent to acquire up to an undivided
      50% interest in Regent's holdings by spending up to $2,500,000 on the
      property. The Company did not make the investment and the option expired
      on December 31, 1995. The Company is awaiting the results of tests on
      adjoining claims prior to the formulation of a plan of exploration which
      may or may not include third parties.

7.    Note Payable.

      During the year ended September 30, 1995, the Company received $1,100,000
      in return for a note payable, with the producing wells of the Company used
      as collateral. Interest of 10% per annum is due monthly. The balance
      outstanding on this loan as of March 31, 1997 was $688,000.

                                        8
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

8.    Due to (from) Related Parties.


                                                   March 31,         March 31,
                                                     1997              1996
                                                   ---------        ----------
       Net due to Haly Corporation -
         Bearing interest at prime +1%             $308,334           52,472
         Bearing interest at TCD +1.5%                 --              5,319
                                                   ---------        ----------
                                                   $308,334           57,791
                                                   ---------        ----------
       Net due (From) to Amir and Erlich
         Bearing interest at prime +3%               91,062          151,000
         Bearing interest at 7%                     167,197             --
         Non-interest bearing
                                                       --            102,870
                                                   ---------        ----------
                                                    258,259          253,870
                                                   ---------        ----------
                                                   $566,593          311,661
                                                   =========        ==========

      There are no fixed repayment terms for these amounts.

9.    Related Party Transactions.

      Remuneration of directors for the periods ended March 31, 1997 and March
      31, 1996 was $0.00 and $2,739, respectively. Remuneration for the years
      September 30, 1992 through 1996 in the amount of $54,761 have yet to be
      paid to the directors.

      Haly Corporation (whose shareholders are shareholders and directors of the
      Company) has charged, after amounts recovered from third parties, for the
      periods ended March 31, 1997 and March 31, 1996 the sum of $138,426 and
      $135,000, respectively for administrative services including remuneration
      of Dov Amir and Louis Erlich who both were officers and directors of the
      Company.

      In February, 1995 the Company acquired 109 mining claims from Messrs. Amir
      and Erlich, directors and shareholders of the Company at their original
      cost of acquisition of $15,487.

      Haly Corporation charged interest in the amount of $5,930, for the quarter
      ended March 31, 1996 and $6,415 in the quarter ended March 31, 1997.
      Amir and Erlich charged interest in the amounts of $0.00 and $5,692 for
      the periods ended March 31, 1997 and March 31, 1996 respectively.

                                        9
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

10.   Debentures.

                                                  As Of            As Of  
                                                March 31,         March 31,
                                                  1997              1996
                                                ---------         ---------
         7% Convertible Debentures                 --                --
         8% Convertible Debentures               $90,000             --

   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 ere 10% of
         the gross proceeds, and 100,000 warrants at U.S. $1.00 and a five year
         term (see note 12(b)). The debentures may 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 five day average closing
         bid price at closing (May 31, 1996). As of December 31, 1996 the 7%
         debentures have been converted into 2,406,285 common shares.

   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 redemption after the term of two. The placement
         agent's fees were 10% of the goss proceeds, and 122,111 warrants
         discussed in not 12(c). the debentures may be converted after a holding
         period of: (a) as to 50% of the principal amount, 45 days after closing
         (October 2, 1996), and (b) as to the remaining 50%, 65 days after
         closing (November 16, 1996). The debentures and accrued interest are
         convertible into the Company's common stock at the less of : (1) the
         fixed conversion price ($1.0171875), or (2) 75% of the average closing
         bid price for the five trading days immediately preceding the date of
         conversion. As of March 31, 1997, $1,220,000 of the 8% debentures have
         been converted into 5,573,338 shares of common stock.

         The fair value of the debentures is not materially different from the
         carrying amount on the balance sheet.

                                       10
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

11.   Capital Stock.

<TABLE>
<CAPTION>
                                                                         NUMBER OF                 NUMBER OF
                                                                       COMMON SHARES           PREFERRED SHARES
                                                                      PAR VALUE $.01            PAR VALUE $.01
                      AUTHORIZED                          Ref.                                                            AMOUNT
<S>                                                      <C>           <C>                       <C>                   <C>
                                                                         50,000,000                50,000,000

Balance as at September 30, 1996                                         13,154,854                   -0-              $  8,860,984

Issued upon conversion of Debentures                      (1)             8,722,525                   -0-                 1,427,241

Issued upon Acquisition of Deven Resources,               (2)             2,600,000                   -0-                 2,500,000
Inc.

Issued For Services                                       (3)               702,666                   -0-                       --

Exercise of Warrants                                      (4)               400,000                   -0-                       --

Balance as at March 31, 1997                                            $25,580,045                   -0-              $12,788,225
                                                                        ===========                                    ===========
</TABLE>

(1)   During the period ended March 31, 1997, $790,000 of the 8% convertible
      Debentures were converted into 5,246,966 shares of common stock.

(2)   Effective October 1, 1996, the Company acquired all of the issued and
      outstanding stock of Deven Resources, Inc. ("Deven") for 2,600,000 shares
      of the Company's common stock. Mr. David F. Lincoln was the principal
      shareholder of Deven and received 1,820,000 of the 2,600,000 shares of
      Daleco common stock. (See Note 16)

(3)   In November, 1996, the Company issued 265,000 shares to consultants, those
      included: 25,000 shares to Rodney C. Hill, Esquire, former general counsel
      to the Company; 200,000 to Joel Brownstein, a financial consultant; and,
      40,000 shares to Financial Futures Corporation, a financial consulting
      firm.

      By Agreement dated March 12, 1997, Avonwood agreed to accept 187,666
      shares of the Company's common stock, par value $.01, in exchange for the
      amounts due Avonwood under its Financial Consulting Services Agreement for
      the months of January, February, and March, 1997.

      By Agreement dated October 31, 1996, by and among Wall Street Equities,
      Inc. and the Company. Wall Street Equity was entitled to receive 250,000
      shares of the Company's stock, par value $.01 in exchange for financial
      consulting services.

(4)   The Company entered into a Financial Consulting Services Agreement with
      Avonwood Capital Corporation ("Avonwood") which provided as part of the
      compensation to Avonwood warrants for 800,000 shares at $.35 per share
      expiring May 8, 2001. On October 18, 1996, Avonwood conveyed its warrants
      equally to two of its principles, Thomas R. Smith and James Porter, Jr. On
      November 24, 1996, Mr. Smith exercised his warrants for 400,000 shares of
      common stock by issuing a Note Payable to the Company.

                                       11
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

   (a)   Common Stock Options

         In January, 1995, the Company granted common stock purchase options
         expiring on January 6, 2000 for 850,000 common shares at $.25 per
         share. On the same date, the common stock purchase options previously
         outstanding, which expire on September 5, 1995 for 356,704 common
         shares at $.38 per share, were gifted back to the Company and
         cancelled. The following summary sets out the activity in common stock
         purchase options:


                                                   1997            1996
                                                   ----            ----
         Outstanding at beginning of year         850,000         850,000
         Cancelled                               (150,000)       (150,000)
                                                 --------        --------
         Outstanding at end of year               700,000         700,000
                                                 ========        ========

   (b)   Effective September 29, 1995, the Company granted 500,000 common stock
         purchase warrants expiring on September 30, 2000. Each warrant may be
         exercised for one common share at $.25 per share. The Company entered
         into various consulting agreements dated March 27, 1996, with financial
         advisors. As part of these agreements, effective May 8, 1996, the
         Company granted 2,400,000 common stock purchase warrants expiring on
         May 8, 2001. Each warrant may be exercised for one common share;
         2,300,000 warrants have an exercise price of $.35 each and 100,000
         warrants have an exercise price of $1.00 each. The exercise price of
         the warrants exceeded the March market value of the Company's common
         stock. The following summary details the activity of the common stock
         warrants:


                                                     1997              1996
                                                     ----              ----
         Outstanding at beginning of year           500,000           500,000
         Granted                                  2,400,000         2,400,000
         Exercised                                  400,000           400,000
                                                  ---------         ---------
         Outstanding as of March 31               2,500,000         2,500,000
                                                  =========         =========

                                          
   (c)   Common Stock Warrants Attached to Debentures

         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. As
         of March 31, 1997, the number of warrants outstanding is indeterminable
         due to the exercise formula which is based upon a number of variables
         and future transactions.

                                       12
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

         With respect to the warrants granted to the debentures holders and
         subagents, the warrants are granted in three equal installments on
         September 11, 1996; November 26, 1996; and June 8, 1997. These warrants
         will expire five years from the date of each instalment; 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 will be 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.

         On September 11, 1996, a total of 122,111 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 $1.073 or (2) all a portion of the
         warrants may 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.

   (d)   Net Income Per Share

         Net income per share was calculated on the basis of the weighted
         average number of shares outstanding which amounted to 19,465,358 of
         the period ended March 31, 1997 (12,077,732 shares for the period ended
         March 31, 1996). For the periods ended March 31, 1997 and March 31,
         1996 the exercise of the options and warrants outstanding as at year
         end did not have a dilative effect on the net income per share.

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 Company's tax filings show net operating losses to be applied
      against future taxable income in the amount of approximately $25 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.   Segmented Information.

      Substantially all of the Company's operating activities are in oil and gas
      exploration and development in the United States which is considered to be
      the Company's domestic segment. In addition, the Company has a 100% owned
      subsidiary involved in the harvesting of Timber Concessions in Guyana.

                                       13
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

      The following table identifies customers of the Company who purchased
      greater than ten percent (10%) of the oil and gas produced by the Company:

<TABLE>
<CAPTION>
                                                                  1997            1996   
                                                               Percentage      Percentage
                                                                Of Total        Of Total 
                                                                  Sales           Sales
<S>                                                             <C>            <C>
      Oil Production
          Pride Pipeline Company                                  100%            100%
      Gas Production
          Aquila Southwest Pipeline Corporation                   17.3            16.6
          Austin Chalk National Gas Marketing Services            27.0            27.4
          SONAT                                                   55.7            56.0
</TABLE>

14.   Acquisition of Deven Resources Corporation.

      Under the Stock Purchase Agreement effective October 1, 1996, the Company
      acquired 100% of the issued and outstanding capital stock of Deven
      Resources, Inc. in exchange for 2.6 million shares of common stock with a
      market value of approximately $2.5 million and cash of $150,000. The
      Company accounted for the acquisition under the purchase method of
      accounting with significant categories recorded as follows:


                                               (In Millions)
            Oil and Gas Properties                $1.50
            Goodwill                               1.25
            Less-Net Liabilities Assumed           (.10)
                                                  -----
                                                  $2.65
                                                  =====

15.   Commitment.

      The Company is committed under an agreement with a financial advisor for
      services at the rate of $20,000 per month through May, 1997. In October,
      1996, the Company entered into a one year agreement, expiring September,
      1997, with a financial public relations firm, at the rate of $16,000 per
      month.

16.   Acquisition of Oil and Gas Properties from Reserve Production Inc.
      Liquidating Trust.

      Effective November 27, 1996, a binding letter of intent was signed with
      Reserve Production Inc. Liquidating Trust ("Trust") to acquire oil and gas
      properties with approximately 3 million barrels of oil equivalent and a
      projected annual operating cash flow of $1.5 million. At the time of
      signing, the Company made a deposit of $100,000 ("Earnest Money Deposit").

                                       14
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

      On December 20, 1996, the Company entered into a definitive agreement
      ("Definitive Agreement") for the acquisition of these properties, subject
      to Bankruptcy Court approval and the Seller's meeting certain conditions
      to closing, at a purchase price of $5 Million. Although Bankruptcy Court
      approval was obtained on February 13, 1997, the Trust was unable to meet
      its conditions to closing and the transaction has terminated. The Company
      has made demand for return of the Earnest Money Deposit and other costs
      expended by the Company all in accordance with the Definitive Agreement.
      The Trust has refused to return the Earnest Money Deposit and to reimburse
      the Company for certain costs in accordance with the Definitive Agreement.
      On April 24, 1997, the Company commenced a law suit against the Trust to
      recover the Earnest Money Deposit, other reimbursable costs and other
      unspecified damages.













                                       15
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

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, event 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 affecting 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 Quarter ended March 31, 1997 was marked by a number of events
            which, in the long run, will strengthen the Company and enable it to
            sustain future growth. These events include:

A.    Completion of the acquisition of Deven Resources, Inc.

      Effective October 1, 1996, the Company acquired all the outstanding
      capital stock of Deven Resources, Inc. ("Deven") in exchange for 2.6
      million shares of the Company's common stock plus $150,000 in cash
      advances. Deven contributed $249,466 in management and overhead fees for
      first six months of the current fiscal year and $695,988 in oil and gas
      sales during the period ended March 31, 1997. In addition, Deven's
      interests in oil and gas properties will provide positive cash flow in
      future years. Consolidation of the Company's administrative and accounting
      functions into Deven's operations has been completed during the second
      quarter of Daleco's fiscal year ending September 30, 1997.

                                       16
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

B.    Acquisition of Oil and Gas Properties from Reserve Production Inc.
      Liquidating Trust.

      On April 24, 1997, the Company commenced an Adversary Action against
      Reserve Production, Inc. Liquidating Trust ("Trust") in the United States
      Bankruptcy Court for the Eastern District of Texas, Tyler Division, Case
      No.: 97-6036A (Suit) to recover costs, damages and return of the Company's
      Earnest Money Deposit.

      On November 27, 1996, the Company entered into a Letter of Intent to
      acquire the Trust's interests in oil and gas properties with approximately
      3 million barrels of oil equivalent. On December 20, 1996, the Company
      entered into a Definitive Agreement ("Definitive Agreement") for the
      acquisition of these properties the purchase was conditional upon
      Bankruptcy Court approval, which was obtained on February 13, 1997, and
      the Trust meeting certain conditions to closing, which the Trust was
      unable to do.

      Under the terms of the Definitive Agreement, the Company was required to
      conduct a workover of the Jody No. 2 Well, Fayette County, Texas, which
      the Company did. The Definitive Agreement provided that should the Company
      not acquire the Jody No. 2 Well, for any reason, then the Trust would
      reimburse the Company for the cost of the Jody No. 2 Well workover.

      Since the Trust was unable to meet its conditions to closing as set forth
      in the Definitive Agreement, closing on the transaction did not occur and
      the Company was entitled to repayment of its Earnest Money Deposit made at
      the time of the signing of the Letter of Intent and the cost of the Jody
      No. 2 Well workover. After the Trust's refusal to abide by the terms of
      the Definitive Agreement, the Company commenced the Suit. The Company has
      also alleged that the inability of the Trust to meet its Conditions to
      Closing was the result of the intentional acts of the Trustee for which it
      is seeking damages of an unspecified amount.

      1.    Timber Rights.

            During the period ended March 31, 1997, the Company's subsidiary,
            Sustainable Forest Industries ("Sustainable"), completed the
            development of a business plan to utilize its tropical hardwood
            forest concession in Guyana, South America. This plan calls for
            commercial quantities of timber sales by the quarter ending June 30,
            1997. Sustainable closed its first sale of timber during the
            quarter. Although small in size, 425 utility poles, the sale
            represents the beginning of sales in the Caribbean basin area. The
            Company has also completed its on-site inventory of marketable
            timber on its Phase II 4,200 acre concession in the Waurauboo area
            of Guyana. With the addition of this block, the company's holdings
            in Guyana now stand at over 6,000 acres and have a gross appraised
            value in excess of $15,000,000. During the quarter the Company
            entered into discussion to provide project financing for
            Sustainable. It is anticipated that this financing will be in place
            during the third fiscal quarter. With the funds from the project
            financing, Sustainable will have the necessary working capita to
            take the next step in the harvesting of timber necessary to meet
            larger orders for wood.

                                       17
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996


            At present, Sustainable is in negotiations with several US and
            foreign purchasers of raw and rough cut wood that if consummated
            would return a substantial profit to the Company.

      2.    Settlements.

            During the period ended March 31, 1997, the Company entered into an
            agreement with Avonwood Capital Corporation to satisfy the Company's
            monthly obligation of $15,000 for stock. The exchange covered the
            months of January, February and March, 1997, for which Avonwood was
            issued 187,666 shares of common stock.


ITEM 4      SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.

            On March 20, 1997, the Annual Meeting of Shareholders was held. At
            this meeting there were two matter to be acted upon by the
            Shareholders: (i) election of directors; and, (ii) ratification of
            accounts.

            Seven persons were nominated to serve as directors for the coming
            year and until their successors are elected and qualified. The
            nominees and votes for, against or withheld are as follows:


                   NOMINEES                FOR           AGAINST       ABSTAIN
                   --------             ----------       -------       -------
               Dov Amir                 17,723,608          0          147,707
               Louis Erlich             17,723,608          0          147,707
               David F. Lincoln         17,723,608          0          147,707
               Gary J. Novinskie        17,723,608          0          147,707
               Eberhard Mueller         17,723,608          0          147,707
               C. Warren Trainor        17,723,608          0          147,707
               Mark J. DeNino           17,723,608          0          147,707

            The Shareholder ratified the selection of Coopers & Lybrand or such
            other accounting firm selected by the Board of Directors as the
            Company's certified public accountants as follows:


                    FOR            AGAINST          ABSTAIN
                ----------         -------          -------    
                17,667,525         82,740           121,050

                                       18
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
===============================================================================

ITEM 5      OTHER INFORMATION.

            None.


ITEM 6      EXHIBITS AND REPORTS ON FORM 8-K.

            None.


                                   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 14, 1997                                     Gary J. Novinskie
                                                        -----------------
                                                        Gary J. Novinskie
                                                        President


Date:  May 14, 1997                                     Edward J. Furman
                                                        ----------------
                                                        Edward J. Furman
                                                        Chief Financial Officer

                                       19